China's appetite for copper provides Chile with opportunity
With the copper price hitting a 10-year high, not least thanks to China's insatiable appetite, Chile, the world's leading producer, is facing a "unique" opportunity, experts told AFP.
Copper rose to $ 4.21 a pound on the London Metal Exchange on Wednesday, meaning it has doubled its price since March 2020.
Now experts believe that its price, buoyed by demand from China, could break all records in the coming weeks, surpassing its previous high of $ 4.60 in February 2011 and potentially rising above $ 5 a pound.
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"The intensity of the consumption of primary materials in China has increased due to the (coronavirus) pandemic," Juan Carlos Guajardo, director of the Plusmining consultancy, told AFP.
The Asian giant, which buys almost half of the world's copper production, is trying to become the "world's true factory," he said.
In addition to Chinese demand, copper purchases are also increasing due to its use in renewable energies and electromobility.
In addition, a weakened US dollar means commodities valued in American currency are cheaper for investors using other currencies, and stimulus packages to reboot the pandemic-ravaged economies have flooded the global market with liquidity.
At the same time, since the "boom" years of 2003-13, investment on the supply side of mining has declined - and the subsequent lack of new expansion plans for existing mines has resulted in less copper in the market and higher prices for Chile.
Overall, the conditions created a favorable scenario for Chile's main export.
- 'It won't be there forever' -
Chile produces nearly a third of the world's copper and copper accounts for 10 to 15 percent of the national GDP.
"The rise in the price of copper offers Chile a unique opportunity to further develop the mining sector, increase production capacity and thus meet the expected increasing demand," said Mining and Energy Minister Juan Carlos Jobet.
The price hike "could mobilize more investment in the mining sector and could mean more employment" in a year Chile hopes for renewed economic growth after a difficult 2020 in which GDP declined by six percent due to the pandemic. Finance Minister Rodrigo Cerda said.
Chile's 2020 would have been much more painful if the copper industry, like many other sectors, had been forced to shut down during a coronavirus-imposed lockdown.
Given that the main mining sites were far from the sources of infection, the copper industry was spared the painful shutdown that hit trade centers, restaurants, bars and cinemas, among other things.
However, according to Marcela Vera, an academic at the University of Santiago, Chile will have to beware of rising copper supplies.
Given its use in renewable energies and the possible limited supply, it would be counterproductive for Chile to produce larger quantities of copper, which would lower prices if the metal could become so precious in the future.
"What Chile has to do confidently is to reduce the supply so that prices adjust," said Vera.
Increased production would lead to falling prices and a shorter lifespan for the metal.
"Copper is not a renewable product and it won't be forever," said Vera.
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