Chile: Copper prices surge in January; Chilean copper production contracts in November
Copper prices rose in January to USD 9,007 from the prior month’s USD 8,371, driven by the removal of China’s Covid-19 restrictions and the country’s ensuing rapid economic recovery. Moreover, supply was likely tight: Civil unrest disrupted copper output in Peru, while Chile’s copper output fell 1.1% year on year in December. Chilean copper output has been dampened in recent months by a deterioration in ore quality, water shortages and lower refining rates.
Copper prices are not expected to maintain their January level, and indeed dipped back below USD 9,000 in the first two weeks of February. Over 2023 as a whole, copper prices are expected to average slightly above USD 8,000 per ton, below their 2022 average, dampened by waning economic momentum in developed economies. Together with a likely contraction in Chilean economic activity and high social spending demands, this will lead to the fiscal balance slipping into deficit in 2023.
Regarding copper output, uncertainty is being generated by an updated mining royalty bill currently in Congress and the lack of clarity over mining regulation in the future constitution. Moreover, President Boric’s government is prioritizing the environment over boosting copper output, as evidenced by the recent decision to reject the USD 2.5 billion Dominga mine project. That said, Chile will remain the world’s largest copper producer for the foreseeable future.