Panama copper industry opportunities to watch out for in 2019
Guest Post from Biz Latin Hub
Global demand for copper is increasing, with a predicted annual growth rate of about 2.6% until 2027. The versatile metal is used in a wide range of consumer goods. Consequently, copper firms are searching for new projects amid a worldwide deficit. As demand quickly grows due to copper’s extensive use in renewable energies, it is an industry full of business opportunities.
Copper will diversify the Panamanian economy and increase its annual GDP growth. Significant investments have already been undertaken by the Canadian firm, First Quantum Minerals, since 2013, in the development of the $6 billion Cobre de Panama mine. Currently, the mining sector only contributes 2.5% to GDP. As the first Panamanian vessel with 31,200 tons of copper was exported this month, the industry has a chance to develop and growth, estimating this figure to reach the 9.5%.
The Copper Industry
Copper is the third most consumed industrial metal in the world, after iron and aluminium. It is used in cables, wires and electronics. The metal is widely used in China’s manufacturing and infrastructure industries, which sustains its constant demand. India’s large infrastructural development also requires copper, as well as projects and manufacturing in Japan. These large countries’ demand is pushing the copper industry’s growth.
Currently, Chile is the world’s leading producer of copper. Its mining industry is well established, supported by a relevant legal framework and has a growing commitment to the environment and sustainable practices. A model citizen in terms of its copper industry for Panama.
More broadly, U.S.-China trade tensions threaten to upend copper’s otherwise bullish outlook. While the metal’s fundamentals are strong -- inventories are near their lowest since January 2015. Moreover, the Chinese pipeline of projects is at its weakest in decades, according to Wood Mackenzie -- a trade war could depress industrial activity and the demand for copper.
However, while the future of copper is looking promising, tensions between the US and China could negatively impact the industry’s future. China’s copper inventory is at its lowest since January 2015. Moreover, the country has halted progression on a handful of national projects and innovations. This is because China is refusing to buy copper metal scraps from the US. Ultimately, this decreases the demand for pure copper from Panama, which in-turn lowers the global price.
Copper Price Outlook
FocusEconomics analysts project copper prices to climb in the near-term on an expected receding of trade tensions. Demand is widely expected to outstrip supply owing to the usability of the red metal in new technologies, especially in renewables and electric cars. Moreover, scant supply should tighten the market this year: Lower refining costs in China are seen squeezing smaller smelters in Japan, South Korea and Chile, while slow investment in new mining projects is likely to weigh on output in the long-term.
FocusEconomics Consensus Forecast analysts expect copper prices to average USD 6,504 per metric ton in Q4 2019 and USD 6,837 per metric ton in Q4 2020. The minimum forecast for Q4 2019 is USD 5,600 per metric ton, while the maximum forecast is USD 7,500 per metric ton.
Copper’s Role in Green Energy
Copper is extensively used in renewable energy sources, such as wind turbines and solar panels. As the world converts to renewable energy sources and ditches fossil fuels, the supply of copper will become more important than ever. Corporate purchasing of renewable energy doubled from 2017 to 2018, showing the importance of the industry that is experiencing exponential growth rates and a metal that is essential to its growth.
Electric vehicles also use large amounts of copper. With countries like Costa Rica looking for opportunities in the electric sector to boost their economies, demand for electric vehicles is increasing. China is currently the world’s leading producer of electric vehicles and diplomatic relations between China and Panama are developing rapidly. 28 bilateral agreements have already been established between the two countries, with a further 19 just announced. It is highly likely that a free trade agreement will follow soon. That is extremely good news for those invested in Panama’s copper industry, given China’s copper demand.
Panama Business Outlook
In general, Panama’s government is very pro-business and facilitates foreign investment. Investors are able to register a business in around two weeks. Furthermore, you don’t need to be physically present in the country during the incorporation process. The introduction of the Panama Friendly Nations visa means once you have established economic ties in Panama, you are easily able to register residency, given you’re from one of the specified 50 nations.
Panama has great business opportunities in the mining industry and greenfield properties and local groups are on the hunt for partners. This new investment can be the opportunity and investors have their eyes on copper extraction and service firms.
Opportunities in Panama´s Copper Industry
Panama has one of the world’s largest new copper mines. Until very recently the country’s wealth of copper had been left unexplored due to accessibility issues. First Quantum Minerals, a Canadian mining company, recently made the biggest investment the country has seen outside of the Canal into exploring Panama’s copper deposits. With the help of First Quantum Minerals, local mining complex Cobre Panama processed its first ore this year, 50 years after the copper deposits were discovered, and plans to mine 100 million tonnes annually from 2023.
Now with its first mining investment leading the way into Panama’s copper mines, it’s expected others will follow into this multi-billion-dollar industry. Panama is strategically positioned to serve both Central and South America's copper needs. Furthermore, free trade zones and the Panama Canal port facilitate trade. The country has a wealth of free trade and bilateral agreements in place that firms can access to support their copper trading abroad.
Mining service companies also have the opportunity to enter Panama and support excavation firms. Firms that can implement sustainable water management practices, as well as lessening mining firms’ environmental impact can provide high-value services. Health and safety, software systems, waste management and transport firms can also provide valued services to mining firms in Panama.
Also, with clean energy being one of the biggest drivers of copper’s demand at the moment, renewable energy firms have the opportunity to connect with new copper producers in Panama. Those directly involved in exploration can explore export opportunities too.
Stimulating Panama’s Economy
Being the second-largest investment Panama has ever made, the first being the Canal, its economy is sure to benefit in a number of ways. Firstly, opportunities within the job market will increase drastically. As of now, the project has nearly 13,000 partners from 43 different countries. Additionally, 3,000 local jobs will be created from the increased activity and presence in the communities. In terms of just the mining industry, the project will generate close to 6,500 jobs for Panama. Overall, new jobs encourage a lower unemployment rate, foreign direct investment, and innovative ideas and workers from all around the world.
Secondly, Panama should see an increase in their GDP. Copper exports will make up for 3% of the country’s GDP, totalling approximately US$2.2 billion in exports. This number is sure to grow as exploration and exploitation of the area increase. Moreover, Panama’s access to the Canal provides it with the possibility to ship the essential metal to anywhere in the world. Surely, the country’s economy will progress greatly as this project continues.
Panama Economic Outlook
According to FocusEconomics, growth in Panama is projected to accelerate this year on higher private spending and strong public infrastructure investment. FocusEconomics Consensus Forecast panelists project that the economy will grow 4.9% in 2019 and 4.8% in 2020.
What this means for you and your business
With Panama entering the world’s copper industry, there are a lot of opportunities for your business. To ensure success and leverage economic gains, you must be one of the first to enter this market. Being one of the most important private investment projects in the history of Panama and the second most important infrastructure project in the country, many other companies and investors will be flooding the market soon. Companies that decide to enter sooner will benefit from the abundance of business opportunities which are surfacing in a market thirsty for cooper.
About the Author
Biz Latin Hub is owned and managed by an experienced team of local and expatriate professionals, dedicated to assisting our clients in navigating their way through the complexities of the Latin American business environment. We are a market leader in helping both local and foreign companies to do business successfully in Latin America, by providing a full suite of multi-lingual commercial representation and back-office services.
5-year economic forecasts on 30+ economic indicators for more than 130 countries & 30 commodities.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Date: June 19, 2019
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