MercoPress. South Atlantic News Agency

Record copper prices and record budget surpluses in Chile

The Chilean government said Thursday that the record high copper price reached on the London Metal Exchange, over 4 US dollars a pound, is “good news” but also demands prudence.

"We can't lose sight of that fact that in the last weeks we have seen very volatile prices for copper, petroleum and other products" said Finance Minister Andres Velasco. Chile is the world's largest copper producer, and mining exports represent about 60% of the country's total oversea sales. Revenues from copper are also one of the most important sources of revenues for the government. Velasco said that the additional revenue means greater fiscal saving capacity which will enable the government to continue implementing social policies for the county's needy. "It's good news, we're the world's main copper producers with 5.6 million tons but we must be cautious and cold headed", he insisted. Spot copper on the London Metal Exchange rose 2.71% to 4.02994 US dollars a pound, according to Chile's copper commission Cochilco's daily market data. Higher copper prices helped drive the surplus, with the metal averaging 3.23 a pound in 2007 - topping the previous record 3.05/lb averaged in 2006. Chile's consolidated fiscal surplus reached a record 8.7% of GDP, about 17.4 billion US dollars in 2007, up from a 2006 surplus of 7.7% of GDP, according to official statistics. For 2008, the government estimated a fiscal surplus of 4.8% of GDP. It could even be higher as copper prices continue to top expectations, the government has said. For the 2008 fiscal budget, the government estimated copper prices to average 2.50/lb. For Chile each extra US cent in the average annual copper price represents 35 million US dollars in taxes and 90 million US dollars in the payments balance. The bull market for copper has been attributed to new investors jumping into the commodities markets as currencies depreciate, and the strong global demand particularly from China which is the world' leading consumer of the red metal. However some experts also caution that the slump in the US housing industry will eventually have an impact on the copper market