Andina

MEF: Copper price reached new historic high, will be key to Peru's economy

11:16 | Lima, May. 22.

The international copper price continues to rise. At Monday's close, it reached a historic price of 492 U.S. cents per pound. So far in May, the average copper price had totaled 454 U.S. cents per pound, the highest amount since April 2022, the Ministry of Economy and Finance (MEF) reported.

The increase in prices of the red metal is explained by an excess of global demand for copper.

On the one hand, greater demand is associated with better prospects for global economic growth and a gradual recovery in global manufacturing activity, driven by the development of energy and technological transition.

On the other hand, the lower supply is linked to the closure of operations at Cobre Panamá mine, lower production at Anglo American deposits, and the reduction of production by a group of Chinese smelters.

In addition, other factors that have contributed to the rise in copper price are the new sanctions on Russia by the United States (prohibition of metal imports) and greater investor appetite reflected in the rise in buying positions on metal exchanges.

Within this framework, in May, Cochilco foresees that demand will be greater than supply by registering a supply-demand imbalance for 2024 of -364,000 MT (February: -177,000 MT), which will imply that copper price remains at high levels.

Higher copper prices will contribute positively to economic activity and improved incomes.

Thus, it is estimated that for every 10 U.S. cents increase in the average annual copper price, economic activity tends to increase by 0.1 p.p. (percentage points).

This effect is said to be linked to both the stimulation of exports and the positive impact on investment through the reactivation of mining exploration and exploitation projects, boost to sectors complementary to mining, among others.

In this regard, tax revenues would also be favored. For example, it is estimated that if there were a 10% increase in the cooper price —equivalent to a 40-cent increase in price— the annual effect of increase in tax revenues would be around 0.1% and 0.2% of GDP.

Thus, a favorable position is created that would boost the economy, and could also contribute to partially relieving pressures on fiscal coffers.

(END) NDP/CNA/MVB

Published: 5/22/2024