The Strategist

Codelco: Politics is dangerous for the commodity market

12/06/2017 - 13:30

Uncertainty in politics developed countries poses a greater threat to the industrial goods industries than any volatile growth slowdown in China, the world's largest copper producer believes.

Eva K.
Eva K.
"The political system of the United States, the UK’s political system, as well as the Europeans, are trying everything possible to increase uncertainty," told chairman of the board of directors of the Chilean state mining company Codelco Óscar Landerretche to Bloomberg in Shanghai.

"If there is crisis on the world financial markets, or the economy is going through a crisis because of the failure of state policy, in the end it will negatively affect the commodity markets," he added.

Copper prices rose 22% this year; other metals also went up against the backdrop of faster growth in developed countries and recovery in demand in China. A number of analysts - from the hedge fund Shanghai Chaos Investment Group to Goldman Sachs Group Inc. - noted the efforts of President Xi Jinping to reduce the level of debt and limit the real estate sector as crucial constraints to commodity markets.

Earlier it was reported that China intends to strengthen financial regulation and adopt tough measures to combat speculation in the real estate market in order to stabilize prices and prevent the emergence of "bubbles". The regulators said that China would prevent illegal transfer of funds to the real estate market and ensure a balanced distribution of capital between real estate and other industries.

"China’s economy is a strong economy. It has shown that it can behave in a very adult way," said Landerretche, who is also a former professor of economics at the University of Chile. He compared Western politicians who "fight with each other on Twitter" to China's orientation toward a continuing strategy.

Chairman of Codelco’s Board of Directors made these statements during a series of events and meetings organized by the representatives of the copper industry of Chile together with its Chinese counterparts. As noted by Bloomberg, Shanghai was optimistic about the future prospects of the commodity market, which is supported by the forecasts of shortages in the long term.

According to Landerretche, the price of copper can return to the level of $ 10 thousand per ton. During the auction in London on Friday, the price was standing at $ 6,780.

The main risk for copper in 2018 is connected with the state policy aimed at solving the debt problem in China, said Iván Arriagada, the director of yet another Chilean mining company, Antofagasta Plc, to Bloomberg in Shanghai. However, his evaluation of the prospects for China is generally in line with Landerretche’s forecasts.

"All signals are aimed at increasing confidence in their power to manage monetary and fiscal policies, and not vice versa," - said Arriagada.