Chilean presidential candidate Sebastian Pinera celebrates with supporters after leading in a first-round election, in Santiago, on November 19 2017. Picture: REUTERS
Chilean presidential candidate Sebastian Pinera celebrates with supporters after leading in a first-round election, in Santiago, on November 19 2017. Picture: REUTERS

Sydney — There was a time when a sneeze in Santiago would cause the global copper market to catch a cold.

Not any more. The first round of Chilean presidential elections on Sunday delivered a surprisingly weak result for frontrunner Sebastian Pinera, a conservative billionaire running on a fiscal consolidation platform.

The country’s stocks fell the most in six years and the peso suffered the biggest loss among emerging-market currencies on Monday.

But copper barely blinked, with a pretty routine 0.75% gain.

That complacent reaction is spookily similar to the way oil more or less shrugged off the palace intrigue in Riyadh earlier this month. Like its Arab peer in the crude market, Chile’s role as the Saudi Arabia of copper is weakening.

As recently as 2005, Chile accounted for more than a third of world copper production. The value of exports from Peru, Australia and the North American Free Trade Agreement (Nafta) countries came to just 55% of Chile’s total in 2001. Nowadays, that trio export 50% more copper by value, and Chilean tonnage has slipped to less than a quarter of global output.

Part of the reason is geological. Back in the industry’s heyday, the average hunk of ore in a miner’s underground reserves contained more than 1% copper. That has since declined to not much more than 0.5%, and will fall a further 17% over the coming decade, according to Wood Mackenzie.

Chile, a linchpin of the global market since the 1980s, is starting to look particularly long in the tooth.

State-owned miner Codelco, once the undisputed leader, has slipped behind Freeport-McMoRan in terms of output and has a fight on its hands to avoid being overtaken by BHP Billiton too.

At Escondida, the biggest deposit of all, controlling shareholder BHP has taken to reporting "grade-adjusted" results to account for the declining quality of the ore available.

Output from Chuquicamata and Radomiro Tomic, once among Codelco’s crown jewels, are well down on their levels of a decade ago.

The huge deposits thrust by the Andes mountains still confer on Chile some formidable advantages. Collahuasi, the Anglo American-Glencore joint venture that’s the second-biggest deposit, has a projected reserve life that stretches into the 2080s. Escondida could be operating well into the 22nd century, and a Codelco presentation last month estimated that its Andina ore body would finally run out in 2419.

Still, size isn’t everything. At a time of declining grades across the industry, the attractions of richer deposits shine ever brighter, such as Rio Tinto’s Oyu Tolgoi in Mongolia, Norilsk Nickel’s Taimyr mines in Siberia, and even the politically risky mines of central Africa’s copper belt. That’s a field in which Chile, with its large, lower-grade deposits, has never really been able to compete.

For the world, that’s probably no bad thing. It’s never good for supplies of crucial commodities to be too concentrated, and the more diverse copper market these days provides a degree of protection should industrial action, politics or bad weather interrupt supply in one country or another.

Chile, though, still depends on copper for more than half of its exports, and output is stuck at the 5.5-million tonnes a year first reached a decade ago.

Whoever wins the second round of elections next month will face a future in which copper’s traditional support of the economy looks weaker than it has in decades.

Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. This column does not necessarily reflect the opinion of Bloomberg and its owners.


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