War in Ukraine: impacts of the rise in the price of copper in Peru

The intensity of the war in Ukraine caused a great impact on the financial markets this Monday, March 7, after the prices of the metals broke new records. One of them was the copper pricewhich reached a record high of US$ 10,845 a ton on the London Metal Exchange (LME), before closing at US$10,730, a new high.

Fitch Ratings pointed out, this last Monday, March 7, that the impact of the high prices of raw materials, such as the higher values ​​of metals, will benefit Chile and Peru.

Peru is the second producer of copper in the world. In 2021, our exports of the red metal amounted to 2,332 tons, with a value of 20 million 698 thousand dollars. Arturo García, professor at ESAN, recalls that the mineral represents 33% of total sales abroad.

The copper price, to date, in the international market, has increased by 55% since April 3, 2020, the first year of the pandemic. Diego Camacho, international economist at Credicorp Capital, highlights that the conflict between Ukraine and Russia it is a new challenge that “ends up limiting the normal functioning of businesses”.

Romulus Muchoformer deputy minister of Mines, argues that this bonanza should be taken advantage of, which “will bring huge benefits such as tax revenues.”

In 2021, Income Tax collection increased 43.8% and 24.7%, compared to 2020 and 2019, respectively. While the IGV increased 41% and 23% in relation to 2020 and 2019, correspondingly.

Likewise, Mucho affirms that “beyond the war, the copper It will continue to be used in the coming months and years for the transition to renewable energies and electromobility and its price, which could take it up to US$15,000”. And it is that, in the voice of the also professor, the price of commodity maintains a stable or rising price due to the reactivation of China.

For his part, César Romero, head of research at Renta 4 SAB, warns that if the increase in the price of copper is sustained for a minimum of one week, it will be decisive to generate investments.

“In the end, it marks the moment in which the price of the commodity is found, and that is what makes companies able to generate greater investments; as long as it is something that can be sustained in the short term. If it were a one-day thing we wouldn’t have seen the impact, but there are now more than ten and this will continue. We don’t see commodity prices going down,” he said.

Mucho, for his part, calculates that the continuation of the high prices could generate an increase of US$3,500 to US$4,000 million in income from exports in copper in 2022, above all, with the start of operations of Quellaveco, Minajusta and Toromocho.

“That brings proportionally higher income for the State, companies and for the communities. As long as the current mines maintain their production”, he advanced.

García recalled that the prices of minerals, especially copper, “it will mitigate the pressure on inflation that it could have due to the conflict between Russia and Ukraine, and due to the increases in interest rates by the Federal Reserve (FED) and those that would have occurred during the year since the middle of this month; as well as calm an exaggerated increase in the dollar.

Diego Camacho of Credicorpon the other hand, warns that although the copper has risen, it is due to “high demand in the face of prospects for greater industrial use of the product due to a situation of risk aversion fueled by the rise in oil.”

“Copper does not rise in the same proportion as oil, since when that raw materials market calms down in the short or medium term, there will be a correction in cost,” Camacho said.

Fitch-Rating he noted that at Peru they benefit from the higher prices of metals, but an exaggerated increase in these would cause “a significant impact on global growth and could cause them to fall, but as oil importers, the benefit will be offset by the high prices that crude oil has presented”.