The diversification of Chilean copper exports protects the industry, according to an
expert. However, a greater trade conflict would pose a risk.
By Catalina Muñoz-Kappes
The tariffs imposed by U.S. President Donald Trump on aluminum and steel imports would have a limited impact on the copper mining industry. Although following Monday’s announcement, the price of the metal dropped by 0.46% to US$4.19 per pound at the close of the London Metal Exchange, and copper futures fell by 2.38%, the industry is not expected to suffer major consequences, according to Juan Carlos Guajardo, executive director of Plusmining.
“Fortunately, Chile is much less dependent on a single market, unlike countries such as Canada and Mexico, which are highly connected and linked to the United States. Therefore, Chile’s diversification allows it to mitigate the impact. In the case of the mining industry, I believe the impact would be rather limited,” he stated.
Could the effects on the aluminum and steel industry have repercussions on
copper?
“So far, the main concern is macroeconomic effects. That is, if this leads to a broader trade war with retaliatory measures from affected countries, it will ultimately drive up costs and inflation, forcing higher interest rates for a longer period. This would impact financing and, ultimately, economic growth. Regarding direct measures on copper, we are still in the realm of speculation, as we do not yet know what might ultimately happen.”
How would a trade war affect industries that demand copper?
“That is where the link to copper lies because if there is a greater macroeconomic impact and lower economic growth, it means there will be less demand for goods and services, and ultimately, less demand for raw materials like copper.”
The Association of Metallurgical and Metalworking Industries has expressed concerns about the impact on the domestic market. Could this situation affect copper?
“Chile produces a relatively small amount of finished metal products. Steel and aluminum production would follow a rather separate path. I see it as a very indirect effect.”
What other effects could U.S. tariffs have on the mining industry?
“It is unclear whether these measures by Trump are part of a long-term industrial development plan or if they are merely intended to provoke negotiations. If we assume that these measures are here to stay, we could expect a reorganization of supply chains. Companies like Alcoa, which manufacture a significant amount of aluminum in Canada, might eventually consider relocating to the U.S. This could create a dynamic where more companies seriously consider reorganizing their manufacturing centers, which could be significant.”
How would a redistribution of supply chains affect Chile?
“Besides the fact that copper demand remains strong, there are many opportunities to diversify trade. The real problem would arise if Chile were caught up in a broader conflict. That is, if—though it does not seem likely—the conflict extended beyond copper, Chile has other industries where the U.S. plays a much more crucial role in our trade. While the risk to the mining industry is currently limited due to our diversified production, an escalation into a full-scale trade conflict would pose a significant risk.”
In what state does the mining industry face this scenario of increased uncertainty?
“The Chilean mining industry has resolved several uncertainties in recent years. The regulatory framework and political environment, which were quite turbulent some years ago, have now been redirected towards greater predictability. However, we do not have many new projects, which I believe is the industry’s Achilles’ heel. There is, however, a strong need to develop operational continuity projects and expand existing mines.”
“If an economic and financial crisis were to emerge from this trade war, it would create greater difficulties for Chile’s projects to be completed. Barring this scenario, I believe the outlook for Chile’s mining industry remains positive. Only an extreme scenario could threaten the development of the mining industry in the country.”
Fuente: El Mercurio