IMF: Chile to benefit the most from energy transition due to copper and lithium

A good business for Chile will be the transition to green energies that the world is expected to follow in the coming years and decades due to the importance of commodities such as copper and lithium.

A report on the external sector and current accounts published on August 4 by the International Monetary Fund (IMF) analyzes the impact of this energy transition on producers of four key products for new cleaner technologies: copper, lithium, nickel, and cobalt.

According to the entity, “not all commodity exporters will face a contraction in demand due to the green transition. While demand for fossil fuels will decline, the International Energy Agency’s Zero Emission scenario for 2050 projects a significant increase in demand for metals critical for the transition to green energy”.

In that scenario, the IMF notes that, for example, the value of annual copper production “could more than double in major exporting countries over the next two decades in that scenario”. It also adds that “the projected increases for the other metals are even more dramatic”.

The Fund notes that increases in copper revenues for Chile could reach an annual average of US$70 billion between 2021 and 2040 (up from less than US$30 billion in 2019).

It is well above Peru, the second largest producer on the list, for which a rise of up to US$30 billion is estimated. Further behind comes Australia (also close to US$30 billion), Russia (just over US$20 billion), and Mexico (around US$20 billion).

The difference is more pronounced in lithium production. In this scenario, revenues for production in Chile reach US$25 billion annually in 2021-2040, from less than US$1 billion in 2019. The list of producers of this raw material is followed by Australia, with an average of around US$14 billion, and further behind by Argentina, with around US$5 billion.

The executive director of Plusmining, Juan Carlos Guajardo, points out that “the report draws a conclusion based on the current production and mining projects in these four commodities and assumes that the higher demand will be reflected in higher prices and therefore higher revenues.

“But I believe it would be better to consider that a situation such as the one proposed by the International Energy Agency in terms of higher demand for minerals generates derivative effects.

“I am referring to the fact that the higher prices that will be generated will trigger situations such as the development of projects in different latitudes, substitution, and greater recycling of metals, among others, so we must draw conclusions carefully concerning this issue”.

The expert indicates that “Chile is undoubtedly well positioned, but between now and 2040, there are still many issues that must be defined”.

It could strengthen the impact of commodity cycles on global current account balances. “Commodity cycles are an important driver of global current account balances, reflecting the historical role of cross-border trade in satisfying demand for commodities and the pronounced nature of commodity price cycles.”

The Fund also notes that the geographic concentration of these four commodities is even higher than that of fossil fuels. “Thus, as metals replace fossil fuels, the role of cross-border trade in meeting global demand could increase.”

According to IMF calculations based on U.S. Geological Survey data, Chile currently has over 40% known lithium reserves and over 20% copper reserves.

With information from La Tercera

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