Chile and Peru are the largest copper exporters in the world. Conspiracy Talk News - Archived Photo

PERU (Conspiracy Talk News) – The price of copper rose 30% in 2017, a fact that has had a direct impact on these two countries, which are the main producers of this metal in the world.

It is the highest value of copper in almost four years.

This appreciation puts an end to a negative trend that forced companies to reduce their production costs and confronted the Chilean and Peruvian governments with a fall in tax collection.

The highlight, according to analysts, is that it would not be a one-off phenomenon, given that growth projections indicate that the positive trend should be maintained at least until 2020.

“The market is tending towards a clear context of copper deficit, so the high prices of the second half of 2017 are a reflection of the shortage of the metal expected for the next five years,” he told BBC World Rolando Lay, Crugrup analyst, an international consultancy specialising in the mining market.

“China currently consumes about 50% of the world’s refined copper and naturally any positive news about China’s metal consumption trends will have an immediate impact on the price,” Lay said.

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When China moves, Latin America feels the shake, particularly in the market of raw materials such as copper. That is why the so-called “chinodependencia” has been, for years, the main cause of the rise or fall in metal prices.

One of the keys to the escalation in the price of the last year is in direct relation with the Asian giant – by far the main consumer of copper in the world – whose economy grew 6.8% in 2017, according to the World Bank.

Beijing desperately needs metal for electrical distribution, building wiring, water and gas pipes or thermal systems.

Copper is used, for example, in cars, trains, air-planes, ships, computers, in industry and in broadband connectivity. It is simply essential to grow.

The revolution of electric cars

Beyond China there are other factors that have influenced the increase in the price of this metal, such as the fall of the dollar and the speculative movements of investors.

Equally important is the revolution in the electric car market, which in its strong expansion planned for the next few years will generate an extra demand for copper that could reach 1.2 million tons by 2025.

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Consultants like Equity Research of Credicorp Capital Peru point out that there are several hedge funds that are investing in copper because they are convinced that electric cars will boost the value of the copper market.

It is also influenced by the rapid growth of renewable energies, which are also intensive in the use of copper. For example, a solar or wind plant may demand more than twice as much metal as an electric generator that uses coal.

And we must not forget, experts say, that since large mining projects are not planned and as the quality of the metal has been decreasing, the price will tend to rise pushed also by these additional factors.

The biggest increase in almost four years

December 28, 2017 marked a milestone when the value of copper reached the level of US $ 7,312 a ton on the London Metal Exchange, a level not seen for almost four years.

With this scenario, Chile and Peru have become relatively richer in recent months.

Despite the efforts to diversify their economies, the dependence of these two countries on this metal is so strong that a rise or fall in their value directly impacts their public finances.

In the case of Chile, copper accounts for about half of its exports. About a third of the production is in the hands of state company Codelco, which in recent years faced difficult times.

The phrase “There is not a fucking weight” was made famous by the CEO of Codelco, Nelson Pizarro, in August 2016, when the outlook was bleak and a period of collective bargaining with the workers approached.

New “super-cycle”?

That time seems to have been left behind, as opposed to what could be a potential new “supercycle” of copper , although perhaps not as strong as the previous one, which began in 2003 and raised the price of metal through the roof.

“In the short term, this period generates greater benefits for producers, more income for the country, more public spending, greater investor confidence and an upward pressure on wages,” says Juan Carlos Guajardo, director of consultancy Plus Mining , in conversation with CTN News.

But the other side of the coin, warns the analyst, is that it is necessary to learn from the lessons of the period of low prices, in the sense of making investments thinking in the long term.

“The challenge is capitalization, turning incomes into something virtuous, saving for the future, going beyond the mere exploitation of the resource,” he adds.

The discussion in the producing countries has been focused on how to develop technological innovation in mining and how partnerships between the public and private sectors can be achieved to advance in areas such as research and development.

Mining is a gigantic market, which not only lives on copper, but generates dividends from all sectors associated with the industry.

And each country also has its own challenges. Chile does not foresee large new mining projects on the horizon, while Peru has more room to grow in this sector, given that it did not register the same development in the past decades as the neighboring country and is now attracting more private investors.

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Each also has its own products: Chile sells a greater amount of refined copper, while Peru exports copper concentrate (which is less processed and whose price is lower).

Until now, experts in the sector do not believe that there will be a significant drop in the price of copper.

Some are more optimistic than others and there are always skeptics who think that the market will end up adjusting to return to a “more normal” price, closer to that registered in recent years.

In any case, with the increase that has been registered so far, the governments of Chile and Peru will have a less complicated future in financial terms.

And, theoretically, a greater economic dynamism should generate a higher standard of living for the population and an improvement in public finances so that when the next fall in the price of copper comes, the pain will be less strong.


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