I wrote last week about how the copper market is starting to adjust to lower prices. With a number of significant mines closing down amid the currently-depressed market.
But news this week shows the exact opposite is happening in one of the world's most important copper-producing centers.
That's Chile. Where the government is moving to help unprofitable mining operations stay open. Related: Fed Defers Rate Hike, But Oil Fundamentals Don’t Matter Anyway
Chile's Mining Minister Aurora Williams said Tuesday that the government will give direct financial aid to copper producers. Handing out "emergency loans" to help miners weather the current market.
The loans will be given to medium-sized copper producers across the country -- those with output of less than 50,000 tonnes per year. In total, the rescue package will reportedly apply to just over 20 companies.
The amounts being loaned to these firms are substantial. Amounting to the equivalent of about 10 cents per pound of copper produced. Related: Is This The End Of The U.S Shale Gas Revolution
That could make the difference between profit and loss. A fact that the government is likely counting on, in order to curb mine shutdowns and employee layoffs in the copper mining sector that is key to Chile's economy.
While this is laudable in reducing the human costs of the current downturn, it could have some unexpected effects for copper supply. No exact details have been released on the total production from the companies qualifying for loans -- but it could be up to a million tonnes of copper metal yearly. Which will now stay on the market, even if it's technically unprofitable. Related: Oil Industry Influence Waning Amid Oil Price Slump
Moves like this could delay the recovery in the copper price that has been setting up lately. Chile's copper loans are right now being offered only for the September to December 2015 period -- so it will be critical to see if the government extends the program into 2016, if prices stay low.
Here's to a helping hand,
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Dave Forest
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