The question is whether this rise in the price of the metal is due to structural reasons or is only short-term. Therefore, the government wants to have more information on the table to be certain that there is a long-term change.
The strong increase that the price of copper has had since the beginning of the year, reaching US $ 4.36 a pound in mid-February, its highest level since August 2, 2011, opened the debate on whether there are structural reasons to think that the value it will stay high and whether or not you are facing a new supercycle.
The debate among the experts is open and that is why the government wants to have more information on the table to be sure that it is a change that will last over time.
This is precisely what the Ministry of Finance is analyzing to determine whether or not to call an emergency committee of long-term copper prices.
Although the value has fallen from its February high, it remains firm above US $ 4 a pound and analysts’ outlook is that it will remain high for a long time.
In the Treasury they affirm that different scenarios for copper are being analyzed, making assumptions and gathering information. “We are reviewing the background. There has to be a structural change in the price of copper to make a call and that is what we are evaluating: to know if there are enough elements that merit making a call ”, they mention in Teatinos 120.
On this point they argue that two options are being considered: that the Treasury internally determines if there is a structural change or invite the committee of experts to analyze it and deliver their recommendation.
There is still no decision made, but the deadlines are shortened, since any new summons must be defined soon, between March and no later than April, since otherwise it loses effectiveness, since this committee must meet again in July in its usual call for the calculation of copper for the 2022 budget.
The long-term copper reference price for this year was set at US $ 2.88 per pound. For every additional cent of the dollar that the price of copper rises, the treasury collects an additional US $ 20 million. Therefore, if the long-term price were to rise, the treasury would have more structural fiscal space to project higher spending, or else reduce the structural deficit. For this year, the projection that the Treasury has is -4.2%.
In terms of the effective price, the initial projection that the government made to prepare the 2021 budget was US $ 2.88, then in the Public Finance Report (IFP) for the fourth quarter it raised it to US $ 3.35. So far this year the average price is US $ 3.81 a pound. If the year ends, the Treasury would have an extra US $ 1,860 million compared to the first estimate made, and US $ 920 million if the update made is considered.
What the committee says
The experts who make up the committee anticipate that it is not advisable to call this group “emergency”, since it is about structural income and therefore its changes are not short-term.
Juan Carlos Guajardo, executive director of Plusmining, maintains that “it is not good to call the committee in an extraordinary way. The projection that is made is long-term and it should be maintained. If you want to improve the projection of the committee, it would be better to be sincere and work on an institutional solution, but extraordinary calls do not seem like the way to me ”.
While Álvaro Merino, Manager of Studies of the National Mining Society (Sonami), emphasizes that “summoning the members of the aforementioned committees in the face of abrupt, transitory and short-term changes, particularly in the price of copper, would be a measure that It would reduce the credibility of the structural balance rule, if the parameters with which the fiscal budget was prepared are modified ”.
In this sense, he adds that “it must be borne in mind that if the effective price of copper is higher than the projected value, this will contribute to raising the treasury’s savings, otherwise it will be possible to make use of the reserves to meet the expenditure commitments ”.
Macarena García, economist at Libertad y Desarrollo (LyD), reinforces the idea by pointing out that “it is not clear yet whether the price increase is temporary or something more permanent.” However, he adds that “even if there were a structural change, it would not be advisable to modify the price, since there is an institutional framework that protects us from these short-term developments.”
For García, the problem is that “if, on the one hand, the price of copper rises, spending will rise, but it is not clear that when the opposite happens, when the price goes down, the same will be done, correcting downwards and therefore reduce spending ”. He emphasizes that “the rule protects us that the long-term price does not approach the short-term price.”