For a country like Chile, it is not trivial that the price of copper could repeat a performance like that of the so-called “super cycle” between 2003 and 2012. It is important for the planning of public finances, as well as for the expectations and consequent decisions of the public. economic agents, especially investment.
In recent weeks a competition has been unleashed to claim paternity in the christening certificate of a new supercycle, the most recent being JP Morgan. But more modestly, several local analysts had pointed out that there had been conditions for higher prices for some years, since China continued to buy copper, the demand for uses in clean energy, electromobility and information technology had been taking off, and, for On the other hand, the mining industry has invested very little since 2012, limiting the response on the supply side.
But you have to be careful. Added to these good market fundamentals is an additional ingredient that is more volatile. The pandemic has led governments to implement fiscal and monetary stimuli of a magnitude never seen before, which is generating macroeconomic effects of magnitude and not without risk. The extremely high liquidity resulting from the stimuli is behind the unusual strength in equity markets, emerging countries and commodities. Likewise, higher inflation is a concrete threat, which benefits raw materials such as copper, which preserve value as they are physical assets. And also the US dollar could weaken, favoring raw materials, both due to the doubts generated by the uncontrolled issuance of the Fed and due to geopolitical events, especially the rise of China.
This financial factor intensifies the upward cycle but at the same time poses risks that could generate major crises in a few years, so Chile should not forget its far-sighted countercyclical policy for managing fiscal resources.
The fundamentals for an extended period of high copper prices are in, but that does not mean that the same pattern from the previous supercycle will be repeated.
But beyond the economic aspect, it may be time to ask questions that are very difficult to address. Did the previous supercycle influence the political instability and populism that is spreading in Latin America? How could this new upward cycle impact this scenario?
Juan Carlos Guajardo – Executive Director of Plusmining
Translated with Google Translator