Main News The price yesterday reached US$ 4.92 per pound:

Copper hits record high, experts advise saving any surplus

The metal’s value marks a nominal record, which does not take inflation into account. There is a speculative component to its run.

Publicada: Wednesday 22 de May del 2024
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The price of copper was quoted at its highest level on Monday, at US$ 4.92 per pound. It thus extended the positive streak seen in the last week with a daily rise of 4.4%. Although the fundamentals that explain this variation are due to the production deficit that is expected in the market, the advance of recent days is linked to the behaviour of various investment funds that were in the need to cover short positions in the United States, players who had not anticipated an acceleration as it occurred. “The strong increase in the value of copper is explained by estimates of investors and large investment funds that estimate that the price will continue to increase,” explains the executive vice president of Cochilco, Joaquín Morales. The official adds that this outlook is based on expectations of increased copper consumption “driven by the electric vehicle and clean energy industry, in addition to demand from the data centre sector, which are necessary for the development of artificial intelligence”. Plusmining’s executive director, Juan Carlos Guajardo, adds that, given the interest seen in copper, there were funds that are not so specialised in mining, but understand that the fundamentals of the mineral are strong, that took the opportunity to take long positions. “There has been an amplification effect, caused by the rapid rise that found fertile ground for these indirect effects that accelerated the rises. That said, it should not be forgotten that these mechanisms also work the other way around, i.e. when there are falls. There will be corrections in the price, and the interesting thing will be to observe how deep and how long they will be, as that will determine the strength of this uptrend that we have seen in recent weeks,” says Guajardo. Fiscal coffers and the suggestion of savings The record amount corresponds to a nominal value. In real terms, deflated by the Producer Price Index (PPI) for all US manufacturing industries, prices in the super-cycle period (2003-2014) are still higher. One of the main effects of higher copper is on the fiscal coffers, given that it is the main export commodity. LyD senior economist Tomás Flores suggests caution, given the speculative origin behind the rise. “It may generate an illusion that we are richer. Worse still, we may start to spend on the basis of that illusion,” he warns. He suggests saving any surpluses, given that they would be transitory. “I don’t think the copper price is going to stay at US$5 for the next decade,” says Flores. BCI’s chief economist, Sergio Lehman, agrees on the responsibility that must be taken in the face of these resources. “In the short term, price movements tend to be exacerbated, precisely because of these positions, and one would expect the price of copper to moderate to some degree going forward, and those are greater arguments for being very careful, very cautious with the use of these resources, sticking to the fiscal rule”. Regarding a correction in the price, Lehman sees that it would be of lesser importance than the rise, because there is strong evidence to suggest that the copper market is very tight in the face of demand for electromobility and green energy. “These are arguments that have already been put forward and are known, in a market where supply is also growing more slowly, and that suggests a tighter market, and, therefore, some correction can be considered, perhaps not of the magnitude of the rise, which has a well-founded component, but there is another, partial, that has more to do with the taking of positions of these investment funds,” says the economist. Commercial impact The Minister of Finance, Mario Marcel, indicated that one of the effects also has to do with containing the rise in the price of the dollar. A higher copper price translates into a greater inflow of foreign currency for the country. It will also have an impact on the price of imported products, such as fuel, which, according to Marcel, will continue to fall in the coming weeks. Regarding the duration of this phenomenon, the Finance Minister noted that “Cochilco’s projections indicate very high copper prices this year and next, there are analysts who anticipate a bullish cycle for quite some time, given the restrictions on the supply side of the copper market globally. In the medium-term projection of the latest Public Finance Report, we envisage relatively high prices until 2028.” Source: El Mercurio

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