Yesterday, the price of copper on the London Metal Exchange closed at nominal highs near US$6.4. Although today it experienced a slight correction to US$6.34, the price has remained surprisingly high. Last year — as it does every year — hile’s Ministry of Finance convened 21 experts on the metal to project the long-term price of copper. The estimate now appears to have fallen short, at US$4.38.
La Segunda consulted these experts again to ask what they thought about the current copper price: What changed since they made their estimates? Will these prices hold? What can be expected for one of the most important international prices for Chile, especially in a context of fiscal stress where higher copper revenues could be key?
Could these high prices be sustained?
“One should expect the price to remain between US$5.5 and US$6 per pound for the rest of the year,” says economist Michèle Labbé, who was part of last year’s Copper Reference Price Advisory Committee. She highlights that these high prices could help public finances, as they “would provide room to finance the deficit without having to borrow —meaning the State could reduce its debt levels.”
Cesco Executive Director Jorge Cantallopts — also part of the latest committee — believes that a price around US$6, or even slightly above that, “could happen,” but warns that there will be sharp declines and volatility. Today, the metal’s price fell 0.79% on the London Metal Exchange.
“A key factor for the short term is the talks currently taking place between the U.S. and China.
“If productive discussions are achieved, facilitating or generating hope for an end to the conflict with Iran, and boosting expectations for stronger economic growth, then those prices could be sustained,” says Cantallopts.
However, he stresses that the equilibrium price of copper is below US$6 “because there are real supply shortage issues.” He says he does not see prices falling below US$5 in the short term — that would be a relatively solid floor.“Plusmining has a forecast for this year between US$5.3 and US$5.8, also depending on the geopolitical context: what happens in the China-U.S. talks and with the war involving Iran,” explains Plusmining Senior Market and Industry Analyst Juan Cristóbal Ciudad.
For her part, Patricia Muñoz, professor in the Mining Engineering Department at Usach — who was also part of the copper committee — states that “a price above US$6 is probably not sustainable over time, and values are more likely to remain closer to US$5.”
She says these prices are positive for Chile and are supported by both structural and cyclical factors. The rest of the experts agree.
Why was the committee’s estimate so far from reality?
There were some things that the Copper Reference Price Advisory Committee did foresee. Structural factors, such as the market’s increasing need for copper for electric mobility and renewable energy. “That was not new,” says Ciudad.
But additional factors emerged, some more temporary in nature but with long-term effects. “No one anticipated what happened in the second half of last year. In September there was the accident at the Grasberg underground mine in Indonesia, the second-largest in the world — 7 workers died — in July the collapse at El Teniente, and there were also disruptions in Africa. One always has to account for unforeseen supply disruptions, but no one knew they would be this severe,” explains Ciudad.
The shutdowns caused by these tragedies reduced supply at a time when copper demand was rising, pushing prices higher.
“The committee projects the long-term price over a 10-year horizon. And during that period, one should expect prices to decline. In fact, it would be negative if prices remained at US$6 or US$7, as some people are suggesting, because that increases the risk of incentives for copper substitution,” comments Cantallopts.
The Cesco expert says that another unexpected factor was the military conflict involving the United States, Israel, and Iran, which erupted on February 28 of this year with the start of Operation “Epic Fury.”
“No one incorporated that scenario, nor the impacts the war would have on the supply chain, both in energy and raw materials,” says Cantallopts.
Thus, behind this rise in copper prices, cyclical factors have been added to structural ones. Demand, experts say, will remain high because “it is unlikely that these macro trends related to electrification will disappear,” says Ciudad. And regarding supply, “new projects are coming online, but they take time,” adds Labbé.
Source: La Segunda