Chile: Copper prices pick up in August
September 1, 2022
After tumbling in July on global recession fears, copper prices rose on average in August, coming in at USD 7,991 per metric ton compared to the prior month’s USD 7,545 per ton. However, prices were down 14.7% in August from the same month of the prior year. Prices did not see major changes in the first ten days of September.
Higher average prices in recent weeks were driven by stronger Chinese imports of the metal, as the Asian heavyweight took advantage of the sharp fall in prices from early June to mid-July to step up purchases. Moreover, Chile’s copper output fell 8.6% year on year in July, the 12th straight monthly decline and the sharpest since April. This likely kept global supply tight and supported prices. Chile’s output has been dampened in recent months by a deterioration in ore quality, water shortages and lower refining rates. Finally, in early September, workers at the Escondida mine—the world’s largest—announced they planned to strike. If this goes ahead, it will deal a further blow to copper production.
Looking forward, the recent rejection of the proposed constitution is positive for the mining sector—the constitution would have generated legal uncertainty and placed tougher limitations on mining activity. However, the government still plans to increase taxes on the sector, which could affect investment somewhat. In any case, Chile will likely remain the world’s largest copper producer for the foreseeable future.
Copper prices are now expected to average around USD 8,000 per ton in 2023. While down from the USD 9,000+ level observed during much of 2021 and H1 2022, a copper price of USD 8,000 would still be substantially higher than pre-Covid-19 levels and would support the public coffers.
Author: Oliver Reynolds, Economist