Codelco, the world’s largest copper producer, is reassuring traders worried that the spread of Covid-19 in Chile will disrupt metal supplies.
“Definitely not,” the chairman said. Juan Benavidez said when asked if tightening restrictions this week would stop the company’s operations or supplies. In an interview on Tuesday, he said Codelco was able to increase production in the first quarter despite a surge in infections in Chile. “So far this year we have a production loan.”
Due to the pandemic, Chilean mines, which account for more than a quarter of the world’s supply, have been able to maintain high production levels by changing shifts, testing, tracking and postponing non-essential work. It has been a blessing for Chinese steel mills hungry for materials amid supply disruptions elsewhere and recovery in demand.
However, production in Chile has declined slightly over the past few months from last year’s levels, suggesting that mines such as the giant BHP Group operation in Escondida may be fatigued by the Covid response.
The industry is now facing another tough test. Despite rolling out one of the fastest vaccination programs in the world, Chile has seen cases of cases and hospitalizations skyrocketing, prompting authorities to close borders to citizens and foreign residents and require all truck drivers to test negative before entering. While the government says the new measures will not affect mining or maritime transportation, traders are unsure as supply fluctuations are pushing futures to a two-week high.
“The program we started at the beginning of this pandemic, which we have improved over time, has given us excellent results,” Benavides said. Although the closure of borders can lead to nervousness, “it does not affect our operations or production processes in any way.”
While Chile has yet to disclose copper production for March, the central bank said Wednesday that export earnings from the metal hit an eight-year high last month, supporting Benavides’ optimistic tone.
Copper jumped to its highest level in nearly a decade at the end of February in hopes that vaccinations and incentives will pave the way for a sharp global economic recovery. Since then, prices have declined amid new restrictions and the rise in the dollar.
However, many analysts see further recovery as global demand rebounds and supply fluctuates. The prospects are backed up by the Biden administration’s $ 2.25 trillion US infrastructure plan.
The rise in metal prices is also accompanied by a surge in demand for goods as the pandemic blocks services. While copper is receiving good support from the transition to clean energy and electromobility, demand for goods could decline as the economy normalizes and services rebound, Benavides said.
“Metal fundamentals are strong, but that doesn’t mean it has entered a new supercycle,” he said. Demand is likely to grow 2-4% per annum over the next five years, outpacing supply growth by about 2%. This compares with double-digit growth in consumption in China during the last big price spike.
“There may be a slight shortage, but markets are always adapting to technology and substitutes,” he said. “In addition, this price can be an incentive to develop new projects at marginally higher costs.”
Over the past few years, Codelco has participated in the largest investment program in the copper industry after decades of underdevelopment in its aging deposits. A new underground mine in Chuquicamata is being scaled up as planned, he said, while projects in Andin, El Teniente and El Salvador are on track despite the pandemic.
The goal of the state-owned company is to maintain an annual production of about 1.7 million metric tons.
“This is more than enough for now, but we are constantly evaluating how to convert resources to reserves and move on to production,” he said, citing further expansion of the Radomiro Tomic and Andina mines as potential projects. “Nothing is definite today.”