{"id":21665,"date":"2011-06-13T14:33:30","date_gmt":"2011-06-13T18:33:30","guid":{"rendered":"http:\/\/www.investmentu.com\/?p=20227"},"modified":"2011-06-13T14:33:30","modified_gmt":"2011-06-13T18:33:30","slug":"will-peru-determine-the-future-of-copper-prices","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/06\/13\/will-peru-determine-the-future-of-copper-prices\/","title":{"rendered":"Will Peru Determine The Future of Copper Prices?"},"content":{"rendered":"<p><a class=\"post_title\" href=\"http:\/\/www.investmentu.com\/2011\/June\/peru-future-copper-prices.html\">Will Peru Determine The Future of Copper Prices?<\/a><\/p>\n<p>by <a href=\"http:\/\/www.investmentu.com\/investment-experts\/tony-daltorio.html\" >Tony D&#8217;Altorio<\/a>, <em>Investment U<\/em> Research<br \/>\nMonday, June 13, 2011<\/p>\n<p>The debate continues to rage over the short term as to the  direction of <a href=\"http:\/\/www.investmentu.com\/2011\/March\/rising-copper-prices-real-message.html\" >copper prices<\/a>.<\/p>\n<ul>\n<li>The bears say that demand in China is slowing and that  supplies are plentiful&#8230;<\/li>\n<\/ul>\n<ul>\n<li>Meanwhile, the bulls point to steady demand from China. They  also point to those in the industry who say that supplies are dwindling due to  a lack of big discoveries and the lower quality of the ore being mined today  from all parts of the globe.<\/li>\n<\/ul>\n<p>Bottom line: For the short-term the supply\/demand equation  for copper looks uncertain.<\/p>\n<p>Over the longer term, however, the direction definitely  looks to be positive for the bulls.<\/p>\n<p>Demand for copper from the emerging world, as it builds out  its infrastructure, will more than offset any slackening of demand from the  developed world.<\/p>\n<p>In addition, there&#8217;s no denying the lack of major copper  finds, over the past several years, and the lower quality of the ore being mined  today.<\/p>\n<p>And now, copper bulls have another factor in their corner&#8230;  geopolitics.<\/p>\n<p><strong>Peru&#8217;s Importance to The Global Copper Market <\/strong><\/p>\n<p>Mention copper-mining countries to most investors, and Chile  quickly springs to mind. That South American nation is the world&#8217;s number one  producer of the red metal, accounting for about one-third of global copper  supplies.<\/p>\n<p>But most investors are unaware of the importance of Chile&#8217;s  neighbor &#8211; <a href=\"http:\/\/www.investmentu.com\/2010\/September\/peru-emerging-market.html\" >Peru<\/a> &#8211; to the global copper market. It&#8217;s already the world&#8217;s  second-largest copper producer, roughly equal to the United States and ahead of  China and Indonesia.<\/p>\n<p>Over the next five years, that country&#8217;s importance is  poised to grow on the back of a string of expansion plans and new projects.  This growth will be led by projects from companies such as <strong>Freeport McMoRan <\/strong>(NYSE: <a href=\"http:\/\/www.google.com\/finance?q=NYSE:FCX\" >FCX<\/a>), <strong>Anglo American <\/strong>(PINK: <a href=\"http:\/\/www.google.com\/finance?q=PINK:AAUKY\" >AAUKY<\/a>)  and <strong>Xstrata <\/strong>(PINK: <a href=\"http:\/\/www.google.com\/finance?q=PINK:XSRAY\" >XSRAY<\/a>).<\/p>\n<p>In fact, Macquarie Bank from Australia estimates that Peru  will account for a hefty 32 percent of global mine output growth over the next  five years.<\/p>\n<p>With global supply and demand for copper in a delicate  balance, supplies from these Peruvian projects will have a huge impact on the  direction of copper prices.<\/p>\n<p>This is where geopolitics enters the picture&#8230;<\/p>\n<p><strong>Peru Elects New President and GeoPolitics Enters the Fray&#8230; <\/strong><\/p>\n<p>Peru has just elected a new president, Ollanta Humala. He&#8217;s  a former army officer who attempted a coup in 2000. Mr. Humala once espoused  hard-left and nationalist views and was close to Venezuela&#8217;s president, Hugo  Chavez.<\/p>\n<p>During the campaign, he promised to raise taxes on the  mining sector. He suggested that Peru could impose a windfall tax of up to 40  percent and also raise the corporate rate that miners pay to 45 percent. It&#8217;s  currently 30 percent. Mining companies also pay a three percent royalty tax and  other duties.<\/p>\n<p>If Mr. Humala does raise taxes, some projects are at risk.<\/p>\n<p>Projects for the few years up to 2014 appear safe. Mining  companies have so-called stability agreements that protect them from any tax  increases. But many of these agreements, negotiated in the 1990s, will expire  over the next few years.<\/p>\n<p>So expansion plans and new mines for years after 2014 &#8211; when  Peru is expected to account for more than two-thirds of the global increase in  <a href=\"http:\/\/www.investmentu.com\/2010\/October\/ivn-and-rtp-battle-for-mongolian-copper-mine.html\" >copper mine output<\/a> &#8211; would certainly suffer.<\/p>\n<p>This would certainly push the supply\/demand equation  strongly in favor of the bulls.<\/p>\n<p>Michael Bogusz, a mining analyst at Macquarie, put it this  way: &#8220;We believe that investment in new mines may be delayed and marginal  projects may even be canceled. As a result, any delay in investment decisions  will further tighten the supply side.&#8221;<\/p>\n<p><strong>Humala Models Peru&#8217;s Governance After Lula&#8217;s Brazil <\/strong><\/p>\n<p>Mr. Humala insists though that his model for governance is  not Hugo Chavez, but <a href=\"http:\/\/www.investmentu.com\/2009\/June\/brazils-economy.html\" >Brazil&#8217;s former president Lula<\/a>.<\/p>\n<p>Lula was also a leftist candidate. But he demonstrated it  was possible to combine a business-friendly economic policy with social reforms  that reduced poverty.<\/p>\n<p>The path that President-elect Humala chooses &#8211; Lula or  Chavez &#8211; may well determine Peru&#8217;s future.<\/p>\n<p>And it will certainly help determine the future course of  copper prices. If he chooses Chavez instead of Lula, look for much, much higher  copper prices several years down the road.<\/p>\n<p>Good investing,<\/p>\n<p>Tony D&#8217;Altorio<\/p>\n<div class=\"feedflare\">\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=ZpNI_YXqi84:4Sx44j374u8:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=ZpNI_YXqi84:4Sx44j374u8:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=ZpNI_YXqi84:4Sx44j374u8:V_sGLiPBpWU\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=ZpNI_YXqi84:4Sx44j374u8:qj6IDK7rITs\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=qj6IDK7rITs\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=ZpNI_YXqi84:4Sx44j374u8:gIN9vFwOqvQ\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=ZpNI_YXqi84:4Sx44j374u8:gIN9vFwOqvQ\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=ZpNI_YXqi84:4Sx44j374u8:F7zBnMyn0Lo\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=ZpNI_YXqi84:4Sx44j374u8:F7zBnMyn0Lo\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/InvestmentU\/~4\/ZpNI_YXqi84\" height=\"1\" width=\"1\"\/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The path that President-elect Humala chooses &#8211; Lula or Chavez &#8211; may well determine Peru&#8217;s future. And it will certainly help determine the future course of copper prices. If he chooses Chavez instead of Lula, look for much, much higher copper prices several years down the road&#8230; <strong><a href=\"http:\/\/www.investmentu.com\/2011\/June\/peru-future-copper-prices.html\">Peru and Higher Copper Prices&#8230; >><\/a><\/strong><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-21665","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/21665","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=21665"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/21665\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=21665"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=21665"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=21665"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}