January 15, 2015 / 8:01 PM / 5 years ago

Copper price fall bad news for Chile, but not disaster

By Rosalba O'Brien
    SANTIAGO, Jan 15 (Reuters) - Chile, the world's number one
copper producer, is relatively sanguine about the recent price
collapse in the base metal which accounts for over half its
exports, and economists say they do not see the country being
plunged into economic crisis. 
    Copper, which lost around 15 percent of its value in 2014, 
 fell over 5 percent on Wednesday, as traders remained
jittery over global growth after a recent drop in the price of
    Nowhere is more dependent on copper sales than Chile. In
2014, they were responsible for just over half the country's $77
billion worth of exports, snapped up largely by China, where it
is used in construction.
    As Chinese property developers have become more hesitant
about slinging up buildings, on the other side of the Pacific
Chile has felt the impact. Economic growth in the South American
country slowed sharply last year, the Chilean peso 
weakened 13 percent and the stock market also slipped.
    But, while admitting that a collapse in the copper price
could hurt Chile, economists say the country is well-managed and
do not expect a Venezuela-style commodities-related crisis or
major hit to government spending. 
    "The economy will have to adjust. The peso will have to
depreciate more. It means we will have to accept low growth
rates and to a large extent that's the end of the story," said
Alberto Ramos, co-head of Latin America economic research at
Goldman Sachs.
    Meanwhile, Finance Minister Alberto Arenas largely shrugged
off Wednesday's slide and said the government would not change
its estimate for copper of around $3 a pound in 2015. Copper 
was trading at around $2.60 on Thursday.
    "We're still keeping the forecasts on the copper price, what
is true is that we are going to be permanently monitoring, which
is the right thing to do for the country's public finances," he
    Those public finances remain fairly healthy, key for
President Michelle Bachelet's government, which is pressing
forward with a reform drive despite the slowdown and does not
want to renege on its promises to increase public spending.
Chile's coffers include $14.8 billion (as of November) stashed
away in a sovereign wealth fund. 
    As a country that imports practically all its hydrocarbons,
Chile has benefited from the recent collapse in the oil price.
That has helped to cool inflation and put more pesos in
people's, and miners' pockets.
    But it does not balance out the estimated $60 million lost
in income for every cent the copper price slides, according to
figures from mining association SONAMI.
    So the government may be tapping that savings fund soon.
    "That's precisely the role of the sovereign wealth fund, you
save during the good years to use in years like this one," said

 (Editing by Simon Gardner and Diane Craft)
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