US-China dispute pulls rug from beneath copper prices

15 July 2018

International copper prices, on which the Peruvian economy is hugely dependent, have taken a dive in the last two weeks, following the outbreak of ‘trade wars’ between the United States and China. According to one source, the dispute could cost Peru as much as US$2 billion this year and next. 

The reason for this is that US tariffs on imports from China may hit the Chinese economy hard and therefore undercut demand for key metals such as copper.

The Ministry of Economy and Finance, along with the Peruvian Central Bank (BCRP), had estimated that copper prices this year would remain well above US$3 this year, helping to boost growth and much-needed tax revenues. In the first week of June, prices stood at US$3.32 a pound. On 11 July, this stood at US$2.78.

The willingness of companies to invest in new mining capacity depends crucially on price movements. If prices continue to fall, it may mean projects in Peru being mothballed. It will also reduce the amounts that are distributed to regions of production through the canon system.

The Statistics Institute (INEI) announced last week that growth in the first five months of this year was 4.8%. But thought this sounds encouraging, it is against the backdrop of the economic downturn caused by El Niño in the first five months of 2017. Employment figures continue downwards.

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