Analysis: Chile’s big copper producers cheer price spike; wary of costs

RIO DE JANEIRO, BRAZIL – Mining firms in Chile, the world’s No.1 copper producer, are cheering a rally in the price of the red metal that hit a 10-year high this week, but warned that costs could rise as labor unions and vendors also try to cash in on the trend.

Benchmark copper on the London Metal Exchange climbed this week above US$9,000 a ton for the first time since 2011. Analysts said they were bullish that surging demand from the power and construction industries will overwhelm supply.

The price spike has prompted top financiers from JP Morgan to Goldman Sachs to predict a commodities “supercycle” similar to that of the early 2000s when demand boomed in emerging nations. A “supercycle” in commodity markets is a long boom in demand that drives up prices until they get so high that demand collapses, pulling prices down again.

“I wouldn’t call it a ‘supercycle’ but there are expectations that we will see about three years of good prices,” said Diego Hernández, president of Chile’s National Mining Society (Sonami), which represents the country’s top miners.

Chile’s state-owned Codelco, the world’s largest copper producer, called the latest price spike a “good opportunity” to generate cash for investments, but warned it could drive up costs from goods and service providers.

High copper prices could give unionized workers leverage ahead of upcoming labor negotiations. BHP’s Spence mine and Escondida, the world’s largest copper deposit, are set for negotiations this year as are Antofagasta’s Los Pelambres and Codelco’s flagship El Teniente mine.

“If negotiations get complex, this could lead to possible stoppages, hitting the copper supply,” said Alejandra Wood, Santiago-based head of the Center for Copper Studies (CESCO).

She added most firms were not likely to dramatically alter investment plans due to the rally, except perhaps fast-tracking some “marginal” projects. “The challenge they face is not falling into the trap of thinking this scenario will be something long-term, and thus abandoning the discipline of maintaining costs low just to increase production,” she said.