MercoPress. South Atlantic News Agency

Chile's balanced budget threatened by less copper surplus

Plummeting prices for copper and molybdenum, Chile's main exports, are expected to have a negative impact on the country's finances and for the first time in six years, in 2009, the country could end with a budget deficit.

According to El Mercurio from Santiago, Chile's government owned copper mining and refining company Codelco faces rising costs and falling revenue, which will drastically diminish transfers to the Treasury. In 2006 Codelco transferred almost 8.5 billion US dollars to the treasury; in 2007, almost 8 billion and this year is estimated to drop to 5 billion and next year significantly less. Currently Codelco's costs are in the range of 1.80 USD for a copper cathode lb and with the by-product of molybdenum the overall cost drops to 1.10 USD. Copper at the moment is in the range of 1.70 USD (from almost 4 USD just a few months ago) but molybdenum has also plunged from an average 30 USD to 10.25 USD the lb. Although production costs should also begin to drop (benchmark oil is below 50 USD a barrel) "it's most probable that the sliding of costs will be slower than that for the price of copper in the coming two quarters", argues economist Leonardo Suarez, who anticipates "very tough moments for Codelco and other mining companies in the last quarter of this year". Suarez estimates that molybdenum exports will drop from 3 billion USD this year to less that a third in 2009, "the market for molybdenum has dried up". However he's optimistic as far as Codelco's costs, which will gradually adapt to falling prices, "but certainly not for surplus transfers to government". "With a national budget in the range of 37 billion US dollars and no copper surplus, the fiscal deficit can be estimated in 1% of GDP which will have to be financed with sovereign bonds", points out Suarez. "You can bet on the deficit", agrees Guillermo Pattillo an economist from the Universidad de Santiago. But he's more drastic: "Codelco has a costs' tendency which makes it unviable as a corporation. The only way out is to make her public and float shares at the stock market".