Mining maintains a leading role in the national economy, despite the social crisis

Since the beginning of the social crisis in Chile on October 18, there has been a strong impact on the country’s economy. However, apparently, the mining sector would not have been mostly affected by this situation, at least from a production perspective, since it has maintained its operational continuity. Although there have been isolated episodes road clsoures to the mines, among other situations, the industry has not reported major incidents since that date.

Initially, it was considered that the situation could have an impact on copper mine production, and expectations of a shortage of the red metal were generated specifically due to the situation in Chile. However, this changed as the days went by, maintaining a stable price that, according to experts, would respond to external factors, and that would even begin to pick up in the short term, in response to the apparent truce between the United States and China.

The main indexes of the economy in  October, in Chile, presented a grim picture for the next three months. “However, it is important to stop to analyze both the IMACEC (Monthly Economic Activity Index) and the IPoM (Monetary Policy Report), to understand the role that mining is playing in this economic contingency,” explains Daniela Desormeaux, Director of Cesco and CEO of the consulting firm SignumBOX.

The economist explains that October’s IMACEC reported a fall of 3.4% in twelve months, which was not observed since July of 2009, which is due to a contraction in the non-mining IMACEC, which was – 4.0% in twelve months, given that the mining component expanded 2% in the same period. “In seasonally adjusted terms, the differential between the two indicators is even greater. While the non-mining IMACEC falls 6.1% in relation to the previous month, the index associated with mining expands 0.9%,” she says.

On the other hand, Desormeaux points out that, “although in October the Mining Production Index prepared by the INE (National Statistics Institute) registered a fall of 1.7% in twelve months (due to a lower iron production), in seasonally adjusted terms the indicator increased by 0.4% in relation to September”. To this, is added that the Chilean Copper Commission (Cochilco) reported that during  October, copper production was 490,000 tons, which is 1.1% higher than the average monthly production of the last twelve months.

From the point of view of aggregate demand, the Central Bank expects a 4.0% drop in investment by 2020, due to a contraction in non-mining investment. Indeed, Desormeaux notes, “in the last IPoM, the Central Bank says that the development of the main mining investment projects has not been affected by the social crisis.”

“However, we must remain attentive to how the sector indexes evolve in November and December, in order to assess the real impact that the social crisis has had on mining and its effect towards the first quarter of 2020”, concludes the expert.