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Peru’s Copper Exports Falter

Category: Markets

But economic engine gathers steam for the long haul

The Financial Times reports today that Peru’s government will name three international consultants to monitor the environmental impact of the $4.8-billion Conga gold and copper mine, the biggest single investment in the country’s history. The government also announced it will invest $1.6 billion in the infrastructure in Cajamarca, where the mine is located, in an effort to allay the concerns of protesters who have forced a suspension of operations at Conga.

Just last week, at an investment seminar, consultancy PwC was touting Peru as third among the most-preferred destinations for mining exploration investment in the world … and most preferred in Latin America.

The eurozone’s financial crisis and the slowdown in Chinese purchases of commodities helped depress metals prices as 2011 wound down. And Datamyne’s export trade data indicates (see below) a fall-off in volumes and slightly steeper drop in values of Peruvian exports of copper, a bellwether metal in international trade that we’ve been tracking (see here and here).

But the longer-term forecast is for high-growth demand for ever-scarcer natural resources found in just a handful of locales around the world. The scramble to secure mining rights is well underway. Currently ranked first in world production of silver, second for copper, and fourth for molybdenum, Peru is not only rich in resources, it is politically stable, and its government has pursued policies welcoming to miners – a triple-play that has attracted significant investment.

This investment is crucial to Peru’s fiscal budget. Minister of Finance, Luis Miguel Castilla, has said that mining contributes about 40% of government revenue and two points in GDP growth. Substantial mining investment, together with strong domestic demand, is why the FT forecasts at least 5% growth for the Peruvian economy in 2012, even if exports take a dip.

Earlier this month, Peru’s Ministry of Energy and Mines reported that mining interests had invested $6.075 billion in the first 11 months of 2011, up 71.9% from the same period in 2010.

Cajamarca was the top destination for the investments, attracting $1.16 billion during the period. Small wonder that the Peruvian government is working hard to placate Cajamarca’s protesters and get production at Conga back up and running: investors are watching closely.

Meanwhile, China’s imports of copper were already on the way up as the end of 2011 neared (as Datamyne’s Chinese import data shows below) – and are expected to surge as the New Year of the Dragon begins.

Date posted: January 25, 2012

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