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The fragility of the copper demand for the Chilean economy. Is the increasing demand of China and India of Peruvian copper a threat for Chile?

Author

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  • Loreto Bieritz

    (GWS - Institute of Economic Structures Research)

  • Anke Mönnig

    (GWS - Institute of Economic Structures Research)

Abstract

As one of the world leading copper producers, Chile`s economy is strongly focused on copper: 14% of its GDP is based on the mining sector, 30% of the country’s total investments (including FDI) and around 45% of Chilean exports originate from copper. Hence, the dependency of Chile on this metal is high. The fact that governmental spending is directly linked to the projected copper price from the copper reference price committee emphasizes the importance of the price for Chile`s economic development. For this purpose the ministry of finance convenes ten national copper experts to a panel and asks them for a copper price projection in constant prices for the next decade. By taking the average of the given projections corrected by the highest and lowest projection, the committee obtains the projected copper price. Due to the current international trade conflicts in between China and the USA the copper demand slowed down especially be-cause China is one of the world`s biggest copper importers. In the two years before the trade conflicts began, an optimistic mood in the world copper market prevailed as world-wide demand and prices rose constantly. In a mid-term perspective, copper demand can be expected to remain at a high and stable level since climate change with its growing environmental demands nourishes copper demand through an increasing market for electromobility and renewable energy. In comparison to combustion engines or conventional energy, these new technologies require a far higher amount of copper (Uken (2011), Warren Centre (2016)). For Chile, these tendencies are promising. But China has started to enlarge its copper purchase from Peru (Fajardo (2017), Ortiz (2017)). The imported Peruvian copper misses the purity of the Chilean one but Chinas refinery ca-pacities gives the country the possibility to import the cheaper one and refine it by them-selves (Campodónico (2016), El Comercio (2017)). The reflexion of the present scenario analysis is based on the question if Chile`s northern neighbour could become a serious competitor. To answer this question, Chilean exports are reduced and the macroeconomic effects for Chile are analysed. For this projection the forecasting and simulation model COFORCE is applied.

Suggested Citation

  • Loreto Bieritz & Anke Mönnig, 2020. "The fragility of the copper demand for the Chilean economy. Is the increasing demand of China and India of Peruvian copper a threat for Chile?," GWS Discussion Paper Series 20-2, GWS - Institute of Economic Structures Research.
  • Handle: RePEc:gws:dpaper:20-2
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    Keywords

    Chilean mining sector; Sustainable Mining; Copper; Chilean economy;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation

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