The record rise in copper prices so far this year has generated expectations of higher fiscal revenues for 2026 compared to the original estimates included in the annual Budget, potentially ranging between US$3 billion and US$4 billion, according to specialists. However, lower copper production during the first quarter and the need to “cover” a larger-than-expected fiscal deficit are prompting caution among experts.
By Julio Nahuehual.
Two years ago, when signs of a new global “supercycle” for copper and other commodities were beginning to emerge amid China’s consolidation as the world’s “new factory,” caution still prevailed among analysts regarding price expectations. However, two years later, the sharp rally in copper prices — which has remained above US$6 per pound over the past week — has definitively broken with that caution and forced experts to raise their short- and medium-term forecasts.
The surge in copper prices, combined with the sharp increase in lithium prices this year, will provide relief to Chile’s weakened fiscal accounts and economy in 2026, at a time marked by sluggish economic activity and various external turbulences. “At this moment, with the war in the Middle East, the only good news for the Chilean economy in recent months is the sharp rise in copper prices,” says an influential financial advisor in the local market, who believes there are multiple factors involved in assessing the impact of higher commodity prices on the country’s fiscal revenues.
Although copper fell 3% at the close of the week to US$6.15 per pound, prices remain at record levels: the annual average stands at US$5.86 per pound, nearly 30% higher than the average price last year, despite the ongoing war in Iran. Lithium, meanwhile, ended the week at 192,000 yuan per tonne. By the end of the first quarter, the mineral had accumulated a price increase of nearly 85%, and analysts believe it could continue rising.
The Origins of the Price Surge
Experts agree that current high copper prices are based on structural factors that have existed for years, but they add that temporary pressures have pushed prices beyond expectations in recent weeks. The combination of supply and demand pressures has outweighed any influence from the United States’ attack on Iran and its impact on the global economy, analysts agree.
Catholic University academic Gustavo Lagos states that much of the supply shock affecting the copper market stems from lower production at three key mines worldwide, including the two underground mines at the Kamoa-Kakula complex in the Democratic Republic of Congo, which had to halt production following flooding.
“This resulted in a production reduction of approximately 150,000 tonnes in 2025, a decline that is expected to continue into 2026, since the changes being made to the mining method are significant,” explains Lagos.
He also points to the production impacts caused by the accidents at El Teniente in Chile in July of last year and at Grasberg in Indonesia, the world’s second-largest copper mine after Escondida, where a mudslide claimed the lives of seven workers and completely halted production during the last quarter of the year.
“The estimated production loss exceeded 500,000 tonnes in 2025, with virtually no recovery expected until well into 2027. The accidents at these three enormous underground mines represented a production loss equivalent to nearly 3% of global output,” adds Lagos, who also attributes the copper rally to the weakening of the U.S. dollar against other currencies worldwide.
Daniela Desormeaux, economist at the Catholic University and commodities expert, agrees and argues that there is currently a real supply shortage.
“In recent weeks, all mining companies have reported their operational and financial results for the first quarter, and in that context there has been growing concern about the situation at Grasberg in Indonesia. It was expected to resume operations during the second half of this year, but the indication now is that this may not happen until 2027, or even 2028,” says Desormeaux, recalling that Freeport’s mine normally produces around 700,000 tonnes of copper annually.
“Before this, it was expected that the market would enter deficit toward the end of the decade, but this now confirms that the shortage situation is even more severe and more deficit-prone than previously thought. There is a clear supply problem at the moment,” she adds.
Desormeaux goes further, arguing that China’s restrictions on sulfuric acid exports — a key input in the production process of leached copper — are also affecting the market and global production.
Regarding copper demand, Desormeaux notes that rising oil prices due to the war in the Middle East and tensions between China and the United States have accelerated the global energy transition toward renewable energy and electrification, which benefits both copper and lithium.
Emanoelle Santos, market analyst at investment firm XTB, confirms this view regarding lithium and says that in the short term the mineral’s prices have genuine support to remain elevated, around 200,000 yuan per tonne in the Chinese market, although highly sensitive to the speed at which China reactivates suspended production capacity and to developments in the Middle East conflict.
“On the demand side, the adoption of electric vehicles is accelerating as an alternative to increasingly expensive fossil fuels, while on the supply side production costs are being pressured by sulfur shortages. The market is currently in a critical verification phase: futures prices have already exceeded 200,000 yuan per tonne, but that signal has not yet been transmitted to energy storage contracts or purchasing decisions by battery manufacturers, which continue operating with previous inventories and fixed-price contracts. Until that transmission materializes into concrete purchasing volumes, the rally is driven more by expectations than by effective demand,” explains Santos.
Juan Carlos Guajardo, Executive Director of Plusmining, also agrees that lithium prices benefit from the energy transition. However, Guajardo maintains a more conservative long-term outlook for lithium than for copper. “Lithium has more specific uses and does not benefit from data centers and artificial intelligence in the same way copper does. Unlike copper, lithium does not face resource scarcity; the issue lies in the speed at which projects are brought online. Moreover, technological changes in the lithium market can have an impact within months, whereas in the copper market such changes may take decades,” the expert explains.
Fiscal Impact
In the Public Finance Report (IFP) for the third quarter of last year — used as the basis for preparing the 2026 Budget currently in execution — the forecast average copper price was US$4.35 per pound, more than one dollar below this year’s average price, fueling expectations of the billions of dollars in additional resources that the copper rally could generate.
Private estimates suggest additional revenues for the country ranging between US$30 million and US$60 million for every one-cent increase in the average copper price per pound, mainly derived from higher surpluses transferred by Codelco to the Treasury and from taxation (royalties and corporate taxes) paid by large private mining companies. Final additional revenues will also depend on industry costs this year and the evolution of copper production in Chile, which had a weak start to the year.
Guajardo estimates that with an average copper price of US$5.5 per pound this year, additional fiscal revenues could amount to approximately US$4 billion in 2026. “In any case, that average may still prove conservative, and in that scenario extra revenues for the Treasury could be even higher,” adds the Plusmining executive, noting that this figure would also need to include additional revenues from lithium.
Juan Ortiz, economist at the Economic Context Observatory of Universidad Diego Portales (OCEC-UDP), also attempts to quantify the effect of higher revenues on public finances.
Under a scenario where copper prices average US$5.5 per pound and lithium prices average US$20,000 per tonne, the fiscal impact compared to the 2026 Budget would be an increase of approximately US$2.5 billion from copper and US$600 million from lithium, Ortiz estimates.
“In any case, the effect in Chilean pesos is more limited due to a stronger exchange rate compared to the exchange rate assumption used in the Budget Law,” he notes.
However, the additional injection of resources this year may only provide temporary relief to Chile’s difficult fiscal outlook. Last year’s effective fiscal deficit reached 2.8% of Gross Domestic Product (GDP), equivalent to a negative balance of around US$10 billion, while the target for this year is a deficit of 1.8%.
Within the government, there is a belief that the assumptions used to prepare the 2026 Budget were overly optimistic and that the fiscal “hole” to be covered is far larger than what appears in the latest Public Finance Report prepared by the previous administration.
“Higher revenues from copper or lithium could only offset the overestimation of Budget revenues. Tax revenues are overestimated by around US$2.5 billion. All of that excess revenue will go toward financing the fiscal deficit or reducing debt,” says a fiscal expert, who also qualifies the estimates of higher revenues given the weak mining production recorded during the first quarter.
Chile produced 1,226,290 tonnes of fine copper during the first quarter of 2026, a 6% decrease compared to the same period last year and its weakest first-quarter start since 2017, according to data from the National Statistics Institute (INE).
Fuente: La Tercera