Earlier this month, on Tuesday, March 3, we announced the cancellation of the Cesco Week Santiago 2020 and Cesco Dinner following the spread of the coronavirus. A couple of weeks later we are witnessing an unprecedented global crisis, which has the borders of the main countries closed to decrease the rate of infections. The relatively early cancellation decision -the first of countless mass events in Chile- was due to the mining world correctly anticipating the devastating consequences and necessary measures to face the health crisis of the pandemic.

One of the consequences of this crisis is the collapse of the copper price to unprecedented levels in recent years and without glimpses of early recovery. China’s demand, which represents half of world consumption, is key in this regard. The world’s factory went out, and we don’t know how and when it will come back on.

However, copper-containing products not only go to the Chinese market but a global one. We already know that many automobile plants have closed in Europe and the United States and other copper-consuming manufacturing industries will do. Copper has a great reputation as a thermometer of global economic activity due to the wide spectrum of end applications, both in construction and in consumer products.

We have to prepare for a situation where the copper market is going to be depressed for a long time. It is difficult to predict what this means in terms of price. Before the crisis, copper stood at levels of USD 2.80 – USD 2.85, and analysts projected that this price would be maintained throughout the year. Currently, the price has fallen to USD 2.12 per pound last Thursday.

For there to be a price recovery, adequate fiscal stimuli and monetary policies, such as those adopted in the 2008’s crisis, will not be enough. Productive activity and people circulating and habitually developing their lives would help, and that is precisely what is threatened today and generates great uncertainty.

Although the demand is the fundamental variable, there may be an effect on the market with regards to the supply side, to the extent that mining operations, until now only threatened by the pandemic, are directly impacted. Scenarios of outbreaks in mining camps and towns that disturb production are conceivable. This is already happening in Peru, where some mining operations have stopped producing requested by the authority, as is the case of Cerro Verde. In Chile, the $ 4.7 billion Quebrada Blanca phase II project, which would employ 15,000 workers, has temporarily suspended its construction, and the Quellaveco project in Peru is facing the same situation instructed by the authority. Additionally, and considering the interruptions in supply chains, the lack of some critical materials for mining is not ruled out, which can also impact production volumes.

Finally, it should be mentioned that with the prices we are seeing today, many operations are at the limit or below their breakeven, and that is a very complex scenario. While we are unlikely to see mine closings, we must remain vigilant in this regard. On the other hand, low copper prices will impact tax collection, in an environment of higher fiscal spending and that is predictable to increase further to offset the effects of the recession that we will face.