Andina

Peru's MEF: Copper price remains high, to be key in economic recovery

13:41 | Lima, May. 14.

In recent months, the copper price has experienced a significant increase. So far in May 2024, it has stood at an average of 445 U.S. cents per pound —the highest level in two years.

This increase has been driven by restrictions on production of this metal by key mines in countries, such as Chile, Peru, United States, Poland, Australia, China, among others; a context of low inventory levels; a gradual recovery in China's demand reflected in greater manufacturing activity; and forecasts of greater demand stemming from the energy transition process towards a green economy.

It is worth mentioning that a copper supply deficit scenario is expected for 2024, which will help its price remain at high levels for the remainder of this year.

If copper prices remain at high levels, they will contribute positively to economic activity and improving income, the Ministry of Economy and Finance (MEF) affirmed.

Thus, it is estimated that for every 10 U.S. cents per pound increase in the average annual price of copper, economic activity tends to increase by 0.1 percentage point.

This effect might 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 might also be favored. For example, it is estimated that if there were to be a 10% increase in the price of copper —equivalent to a 40-cent increase in price— the annual effect of the increase on tax revenues would be around 0.1% to 0.2% of Gross Domestic Product (GDP), the ministry detailed.

If copper prices were to remain at May levels, the average price for the year would be around 430 U.S. cents per pound.

In this scenario, a favorable position is established that would invigorate the economy and also contribute to partially easing fiscal pressures, the MEF concluded.

(END) NDP/GDSD/MVB

Publicado: 14/5/2024