Chilean Political Situation Worsens

Updated: Dec 17, 2019

Chile has long been viewed as a bastion of stability in a subcontinent wracked with government frailty. One need to look no further than Venezuela, Ecuador or Brazil to see wide cracks in the relationship between the state and its citizens. Such instability has quickly overtaken Chile. Following a small metro fare increase, protests have swelled as grievances over health care, pensions and income inequality have surfaced.

The government response has been less than ideal. President Pinera initially implemented strict crackdown procedures, adding fuel to the proverbial fire before offering up reforms and rescinding the fare increase. The move has done little to change the situation in Chile and more than 20 people have been killed since protests broke out. The state was also forced to cancel the International Economic and Climate Summit and in early-November, Finance Minister Ignacio Briones warned that 2019 economic growth would likely finish between 2 and 2.2% after initial expectations of 2.6%.

Copper Exports Unaffected

Chile is the largest seaborne exporter of copper in the world. Through the first ten months of 2019, the state managed to load some 2.72 Mt, accounting for 88% of all seaborne loadings. Such export dominance faces downward risks into the fourth quarter, albeit for now departures remain unaffected. On Tuesday, October 22nd, union workers at BHP’s Escondida, the largest copper mine in the world, walked off the job in a show of solidarity with other Chilean workers throughout the country.

State mining company Codelco, the largest copper producer in the world, was also forced to close the Andina mine and the Ventanas smelting division on Wednesday, October 23rd. Juan Olguin, head of the Copper Workers Federation, was quoted as saying that “All of our divisions are taking part in one way or another in this national protest.”

Amid the possibility of longer-term disruptions, the market appears somewhat concerned regarding future supply constraints. Spot copper prices are up 4.4% since early-October. Even so, copper producer Antofagasta made it clear that Chilean dissent is unlikely to have a sizeable influence on the firm’s production with cuts beyond 5,000 tonnes unlikely (3% of Q3 output). This narrative is supported by October export figures, which finished at 0.31 Mt, higher 0.12 Mt m/m.

In the event of any disruption, China will pay the price. Chile has been the sole provider of seaborne copper into the East-Asian state this year with departures so far managing 1.41. Indeed, China has few alternative sources for international copper supplies.