Copper Can Endure Slower China, Chile Bank Official Says

Copper prices, which have climbed 21 percent in the past year, may remain high even if China’s economy decelerates, a Chilean central banker said.

A slowdown in China’s economy in coming years to 7 percent from a current growth rate of almost 10 percent is a possibility that has occurred in other economies, Sebastian Claro said in an interview last week from his office. Copper prices may reflect estimates that China’s economy will slow as Chinese officials tighten monetary policy to contain growing price pressures.

“This would be a natural part of the convergence that we have seen in similar experiences,” he said about a Chinese slowdown. “I don’t know if it’d have a direct impact on the price of copper because I don’t think global economy forecasts are based on 10 percent growth in China forever.”

Chile is the world’s largest producer of copper, whose price on the futures market increased 21 percent in the past 12 months to today’s $4.318 a pound. China, the world’s leading consumer of the metal, has helped drive global demand as its economy grew a faster-than-estimated 9.7 percent last quarter.

Chile’s central bank estimates copper will average $4.20 a pound this year and $4 in 2012, up from last year’s average $3.42 a pound.

Long-Term Prices

Experts convened by Chile’s government last year estimated a long-term copper price of $2.59 a pound, up from previous forecasts of $2.13 a pound. The long-term copper price, which was used to help create forecasts for Chile’s 2011 budget, is an estimate of the average price of copper through 2020.

A slowdown in China’s economy may cause copper and other commodity prices to align with long-term prices at a faster- than-anticipated pace, Claro said April 20, before the Easter weekend.

“It’s also certain that long-term price levels probably will be higher than prices we confronted 10 years ago,” he said. “China faces significant challenges in the short- and medium-term, but it also has conditions to make adjustments and has growth potential to remain vigorous in coming years.”

China was Chile’s leading export market last year, accounting for 24 percent of the South American country’s sales abroad, followed by Japan with almost 11 percent of the total, according to central bank data.

Japan’s Earthquake

Chile is likely to see a “limited” effect from last month’s 9.0-magnitude earthquake in Japan and ensuing nuclear radiation leaks, Claro said.

“The elements that we look at don’t suggest that the impact of Japan’s earthquake and nuclear problem will create a global problem of greater dimensions that would significantly impact Chile,” he said. “There always will be impacts on certain sectors, but for now it seems limited when one evaluates the macroeconomic dimensions.”

Claro, who received his doctorate in economics from the University of California, Los Angeles, was appointed to the central bank board in 2007 for a 10-year term.

Claro in 2003 performed a study for the Inter-American Development Bank on the effect of China’s economy on Latin America and the Caribbean.

(Source: http://www.bloomberg.com/news/2011-04-25/copper-can-endure-slower-china-chile-bank-official-says-1-.html)