CHILE: COPPER PRICE: HIGHER FOR LONGER?
- High price of copper: more due to supply than demand
The price of copper has risen 20% this year and 30% since last October. This price increase has not been accompanied by other metallic or non-metallic minerals, except for silver.
We evaluate different models based on copper price fundamentals and consider that it is not possible to explain the recent increase with traditional macroeconomic and/or financial determinants (chart 1). Speculative agents (non-commercial) have significantly increased their net long positions. Despite this, it is not possible to explain the speed and level of the copper price.
We rule out renewed spot demand for copper as the driver of the recent rally. In our view, the absence of price increases in non-metallic minerals rules out a relevant role for the use of transportation in price increases.
We detect that this bullish cycle has atypical characteristics, different from previous episodes where a similar level was reached (chart 2). It is not possible to rule out that the market is internalizing a higher long-term price due to supply factors, given greater uncertainty about the future production of the metal, in a context of higher taxes, project delays and rapid increases in costs after the pandemic.
In this scenario, we consider that the probability of persistence of this new price level is greater. Higher copper price for longer?
—Aníbal Alarcón
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