Chile Expects Bull Market for Copper Next Year

RIO DE JANEIRO, BRAZIL – The output of the world’s most important copper producer, Chile, will likely rise by 0.6% to 5.82 million tons in 2020, state copper commission Cochilco said on Monday, and to 5.99 million tons in 2021. Cochilco estimated that the copper price will average US$ 2.75 per pound in 2020, before rising to US$ 2.90 per pound in 2021.

In August, Cochilco’s price estimate was US$ 2.62 per pound for 2020 and US$ 2.85 per pound for 2021.

Baldo Prokurica, the mines minister, said in announcing the Cochilco figures on Monday that the higher price estimate was due to positive expectations on demand from China, economic recovery, a drop in copper inventories and the increasing likelihood that a coronavirus vaccine will be widely available within the first six months of next year.

Victor Garay, Cochilco’s markets coordinator, said projections were contingent on possible second waves of the virus which could result in movement restrictions and impact production as well as demand.

Dr. Copper

Copper is often called the economic barometer or even “Dr. Copper”. This is because its price dynamics tend to predict general economic trends. Copper is used extremely widely: in electric equipment (wiring), construction (roofing, pipes), electronics (printed circuits), and much else.

When the economy is growing and there is a lot of manufacturing and construction going on, the demand for copper booms and the price rises. And vice versa: if the economy is going into recession, the demand and price slump. Some even joke that copper has a PhD in economics.

Of course, not all changes in copper prices are due to the wider economic situation. Often, fluctuations are due to supply shortages or surplus, or even protective tariffs.

The key country to watch in the copper market is China. It accounts for over 30% of all global imports (US$40.8bn in 2019), followed by Germany, which imports a quarter as much. China’s enormous construction industry and high-voltage lines need much more copper than the country can produce. In terms of exports, the leaders are Chile and Peru.

Dr. Copper’s barometer role was particularly clear in 2020. As China went into lockdown and stopped its factories, the price tumbled 21.5% from US$2.78 per pound (US$6,076 per ton) at the start of the year to US$2.09 (US$4,774 a ton) on March 23rd. But as soon as the PRC emerged ‘on the other side’, the price of the metal started to grow – and kept growing for six months in a row, reaching a maximum of US$3.1/lb (US$6,837/ton) on September 18 – a 43% increase over the March lows and a two-year high.