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Peru is already the world's second largest copper exporter and
recent elections indicate it's prepared to bet even more heavily on
mining.
That's a smart play as long the world economy, in particular
China, does well. Copper is essential to making the pipes and
electrical wiring that go into new houses and cars, making it
essential as an economy reaches further stages of development.
Although Peru has a number of assets, including a long coast
with rich fishing waters, and a strong agricultural sector, its
export economy has become increasingly dependent on copper, and two
other raw materials, gold and oil.
Peru top exports, Jan.-Oct. 2018
Raw copper $10.3 billion
Gold $5.7 billion
Oil $2.4 billion
Edible fruits and nuts, $2.3 billion
Copper articles $1.9 billion
Food waste $1.7 billion
Fish, crustaceans $823.3 million
Apparel $735.9 million
Zinc $721.6 million
Coffee $471.7 million
The copper business has become so important that the performance
of Peru's export economy in 2019 and beyond will depend in large
part on the mines run by international corporations like
Freeport-McMoRan, Rio Tinto, BHP Billiton, and Anglo-American.
Earlier this month, Peru's central bank said the economy will
grow 4.9% in the fourth quarter over the year before, after growing
only 2.3% in the third quarter.
Peru lies along a volcanic belt running from Utah to Chile that
harbors large amounts of the world's minable copper deposits. The
wealth of gold and other minerals in Peru's hills has been a target
of foreign investors since the 16th century, when the
Spanish invaded. It was in the 20th century, with the
development of electrical wiring, that miners switched their
attention to copper from gold.
But for international mining companies that started flocking to
Peru since the 1970s, there's always been a catch. The country has
one of the world's strongest anti-mining movements, dating back to
native fighting the Conquistadors in the 16th
century.
Mining firms must invest hundreds of millions of dollars to
obtain permits, which are dependent on the political willingness to
permit the digging of mines and the construction of processing
plants.
But in regional elections held on Oct. 7, Peruvians elected a
slate of regional leaders who, overall, are considered more
supportive of mining firms than their predecessors. That should
allow Peruvian copper exports to keep growing.
Peru copper exports, Jan.-Oct., 2010-2018
2018: 6.6 billion kg
2017: 6.4 billion kg
2016: 6.2 billion kg
2015: 3.9 billion kg
2014: 3.1 billion kg
2013: 3.1 billion kg
2012: 3 billion kg
2011: 2.6 billion kg
2010: 2.5 billion kg
In particular, Peru has focused its export growth on selling in
China. It signed a bilateral investment agreement in 1995 and a
free trade deal in 2009. In return, China has ramped up its
investment in Peruvian mines. In 2014, a group of Chinese firms led
by Minmetals bought the Las Bambas mine for almost $6 billion.
Peru's top customers for copper, Jan.-Oct.,
2018
China 4.2 billion kg (+15%)
Japan 666.6 million kg (+5%)
South Korea 411.6 million kg (+11%)
Germany 292.3 million kg (17%)
Brazil 171.9 million kg (-7%)
Spain 148 million kg (-33%)
Bulgaria 125 million kg (-17%)
India 120.9 million kg (-56%)
Namibia 110.8 million kg (+7%)
Philippines 75.1 million kg (-45%)
The stakes for global copper markets are high. In recent years,
thanks to investment in massive supermines like Cerro Verde,
controlled by US miner Freeport-McMoRan, Peru has outpaced
Indonesia and Australia to become the world's number two exporter
of raw copper.
Top copper exporters, Jan.-Sept., 2018
Chile $13.5 billion
Peru $9.5 billion
Indonesia $3.5 billion
Australia $3.3 billion
Canada $2 billion
Mexico $1.94 billion
Brazil $1.94 billion
Spain $1.88 billion
US $1.3 billion
Kazakhstan $610.4 million
To be sure, Peru's copper production and exports don't only
depend on politics. The risk of a global slowdown in demand also
clouds the outlook. And prices have been sluggish recently, driven
down by lower expectations for Chinese industrial demand. If Peru
does catch a cold from the rest of the world, it faces a risk of a
major slowdown.
Meanwhile, as it ships copper and gold to Asia, Peru is buying
more and more consumer goods from China, like electronics, toys and
shoes, and commodities like wheat, corn and oil from the US.
Peru's top sources of imports, Jan.-Oct.,
2018
China $8.4 billion (+15%)
US $7.9 billion (+17%)
Brazil $2 billion (-2.6%)
Ecuador $1.7 billion (+42%)
Mexico $1.6 billion (+9.6%)
Colombia $1.4 billion (+10.6%)
Chile $1.1 billion (+12.5%)
Argentina $1 billion (+5.8%)
Germany $902.2 million (+2.9%)
Japan $894.7 million (+2.6%)
Despite the risk of weak copper prices, the outlook for Peru is
less gloomy than for other economies of similar size which are
dependent on one or two natural resources. A big reason is that
Peru has aggressively globalized during this century. In the last
20 years, it's negotiated free-trade treaties with, among others,
the US, Canada, Singapore, China, Korea, Mexico, Japan and the
European Union.
Posted 17 December 2018 by John Miller, Guest Blogger
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.
