According to the Ministry of Economy and Finance (MEF) of Peru, for every 10 cents per pound (cUS$/lb) increase in the average annual price, economic activity tends to increase by 0.1 percentage point.
In recent months, the price of copper has registered a significant increase and so far in May 2024 it stood at an average of 445 cents per pound (cUS$/lb), the highest level in two years.
The increase in price has been driven by restrictions on the production of the metal by key mines in countries such as Chile, Peru, USA, Poland, Australia, China, among others; a context of low inventory levels; a gradual recovery in demand in China reflected in increased manufacturing activity; and, forecasts of greater demand coming from the energy transition process towards a green economy.
It is worth mentioning that a copper supply deficit scenario is expected for 2024, which will help the price remain at high levels for the remainder of the year. If copper prices remain at high levels, it will contribute positively to economic activity and improve income, said the Ministry of Economy and Finance (MEF).
Thus, it is estimated that for every 10 cents (10 cUS$/lb) increase in the average annual price of copper, economic activity tends to increase by 0.1 percentage point (pp). This effect would be linked to both the stimulus of exports as well as the positive impact on investment through the reactivation of mining exploration and exploitation projects, promotion of complementary sectors to mining, among others.
Along the same lines, tax revenues would also be favored. For example, it is estimated that if there were a 10% increase in the price of copper - equivalent to an increase of 40 cents in the price - the annual effect of the increase in tax revenue would be around 0.1% and 0. 2% of the Gross Domestic Product (GDP), detailed the MEF.
If the price of copper remains at May levels, the average price for the year would be around 430 cUS$/lb. In this scenario, a favorable position is configured that would boost the economy, and could also contribute to partially relieving pressures on the fiscal coffer, the ministry concluded.
