Industry Trend Analysis - Low Prices & Supply Chain Disruptions To Hurt Output - JUNE 2016


BMI View: Chile ' s copper sector will continue to face significant headwinds from both low copper price, and supply chain disruptions , in 2016. As such, we have revised down the country ' s production forecast, and now expect copper output to decline slightly in 2016 before returning to muted growth over our forecast period to 2020.

Chile's copper sector will continue to decline in 2016, on the back of a weak copper price environment, weather-related operational disruptions and declining copper ore grades. Based on this outlook, and supported by weak Q116 data, we revised down our copper production growth forecast for Chile from 2.0% to -0.5% and from 1.6% to 1.0% for 2016 and 2017, respectively.

In terms of volume, we forecast Chile's copper production to fall marginally, from 5.742 million tonnes (mnt) in 2015 to 5.713mnt in 2016. High frequency data bolsters our subdued growth outlook, as according to the World Bureau of Metals Statistics, in Q116, Chile's copper output declined q-o-q by 3.0%, totalling 1.395mnt compared to 1.438mnt in Q115. Climbing rates of mining sector layoffs along with declining investment levels provide further evidence of Chile's mining sector (largely copper) malaise. For instance, in Q116, mining sector layoffs totalled 76,100 people, compared to 66,700 people in Q115. State copper commission Cochilco estimates copper project investment of USD44.1mn 2016, down significantly from USD75.1mn the previous year.

Downhill Trend Not Quite Over
Chile - Mining Sector Layoffs (LHC, '000 people) & Mining Plant/Equipment Investment (RHC, USDmn)
Source: Banco Central de Chile

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