Record copper price masks Chile's labor crisis and rising capital costs

Copper closed August with the highest monthly average price in its history, according to Cochilco data, and that record arrives at the worst possible moment to cushion the bad news Chile piled up in a single session: unemployment hit a five-year high, the dollar climbed above $930 for the first time in a month, and the IPSA failed to hold above 11,500 points. The convergence of these three data points on a single Friday sharply outlines the structural tension running through the Chilean economy: a commodity bonanza enriching the treasury coexisting with a deteriorating labor market and a global financial environment tightening at unexpected speed.

The immediate trigger for the currency and equity moves was the speech by Federal Reserve Governor Kevin Warsh at Jackson Hole. His hawkish remarks pushed the dollar index up 0.5% and drove the two-year U.S. Treasury yield more than ten basis points higher. Money markets shifted to price in nearly a 60% probability that the Fed will announce a 25-basis-point hike in September, and more than that: they now discount an additional adjustment as early as the first quarter of 2027. That repricing of expectations hit the Chilean peso directly and halted the IPSA's initial recovery, which ended up losing ground. Diario Financiero identified the five index stocks most exposed to rising long-term rates, a phenomenon that raises the cost of capital globally just as Chile is trying to attract private investment to sustain its recovery.

The labor market data compounds that picture. INE reported that the unemployment rate for the May-July rolling quarter reached 9.5%, the fourth consecutive quarter above that threshold and the highest level since the same period of 2021. The unemployed exceeded 981,000, the result of an expanding labor force finding no absorption in a market that destroyed 16,292 jobs over twelve months. The employment decline was concentrated in men aged 25 to 34, in manufacturing, and among formal salaried workers — precisely the highest-quality jobs. In eight regions of the country the rate exceeds 10%. Former Finance Minister Ignacio Briones called it a "structural problem" and elevated it to the "very top priority" for economic policy. Most revealing is that the labor deterioration is not detached from the behavior of large corporations: an analysis published by Diario Financiero on IPSA companies shows that since 2019 these firms have accumulated a loss of 26,000 jobs while their revenue per employee jumped from US$224,000 to US$282,000. Retail and banking led that destruction. Corporate productivity is rising; formal employment is falling.

Finance Minister Jorge Quiroz chose this Friday to stake out his position on both fronts of pressure. At a seminar organized by Bci and PwC, he dismissed the notion that the Central Bank should cut the policy rate — currently at 4.5% — to reactivate the economy, arguing that the recovery "is coming through private investment, which has rebounded." He projected investment growth of 7% in 2027 and GDP expansion of 3.5% that year, and announced that the reconstruction law — whose enactment was delayed by challenges before the Constitutional Court — will be promulgated in the first half of September. At the same time, he made clear that the 2027 Budget will have no slack: public spending will grow between 0% and 1%, in a scenario where predetermined state obligations — debt service, pension spending, healthcare — consume virtually all available margin. Fiscal austerity thus coexists with reactivation promises that hinge on private investment, a politically fragile equation.

Copper is the only genuine shock absorber. The metal closed Friday at US$6.59 per pound on the London Metal Exchange, with an August monthly average of US$6.51, a historical record according to Cochilco's series. The year-to-date average is US$6.03 per pound, up nearly 40% from the same period in 2025. That explains Codelco's earnings jump: the state-owned firm sextupled its profits in the first half, posting US$669 million and transferring US$933 million to the treasury, 15% more than the previous year. The problem is that this bonanza does not reflect operational strength. The copper miner's own production fell 11% in the half, hit by lower contributions from El Teniente and maintenance work at Chuquicamata. Prices are doing the heavy lifting; volumes remain under pressure.

Tension in the critical minerals sector extended beyond copper on Friday. The workers' union at Albemarle, the U.S. firm that produces lithium from the Salar de Atacama, approved by 97% a legal strike beginning next Wednesday, September 3, unless mandatory mediation opens space for an agreement in the intervening days. The vote was overwhelming: 466 of 478 members voted in favor of the walkout. Albemarle's operation supplies both the Salar plant and La Negra, where the final product is processed. Any sustained interruption would affect lithium supply at a time when prices for the mineral have improved markedly. Pampa Investments, the vehicle through which Julio Ponce controls 25.77% of SQM, reported half-year earnings of US$202 million, five times more than in the same period a year earlier, driven precisely by stronger performance in the lithium segment at Albemarle's direct competitor.

On the natural resources geopolitics front, Chile on Friday signed a joint declaration on strategic minerals in Santiago alongside Argentina, Bolivia, and Peru, in which the four countries aim to position themselves as reliable regional suppliers for global supply chains tied to the energy transition and artificial intelligence. Dual Minister Daniel Mas estimated that critical minerals demand will grow between 400% and 600% over the next decade. In parallel, Foreign Minister Francisco Pérez Mackenna met with his Japanese counterpart Toshimitsu Motegi to reinforce a bilateral relationship that already exceeds US$7 billion in investment stock and grew 11% in the first half of the year.

The groundbreaking of Minera Dominga, announced by the CEO of Andes Iron after 13 years of administrative and judicial proceedings, is the most significant investment news in the mining-port sector this year. With more than US$3 billion committed and projected production of 12 million tons per year of high-grade iron concentrate, the project in the Coquimbo Region represents a long-term bet on global iron ore demand that coincides with renewed market interest in transition metals.

Next week will bring the July Imacec, which will clarify whether the first-half contraction — GDP fell 0.3% — is reversing or deepening. Added to that is U.S. employment data, which will be decisive in confirming whether Warsh's signals at Jackson Hole reflect an institutional Fed stance or a personal position. In Chile, eyes will be on whether mediation at Albemarle progresses before Wednesday, on the impact of the possible enactment of the reconstruction law on business expectations, and on whether the exchange rate consolidates its climb or finds support from copper prices.

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**Codelco (state-owned, unlisted)** — The Chilean copper miner sextupled its first-half 2026 profits to US$669 million, driven by an average copper price of US$5.93 per pound, but its own production fell 11% to 564,000 metric fine tons, straining the operational recovery narrative promoted by new CEO Jorge Gómez.

**Pampa Investments (BCS: PAMPA)** — The vehicle controlling 25.77% of SQM reported half-year earnings of US$202 million, a 403% increase, a direct reflection of SQM's record lithium segment performance; the firm also completed a corporate restructuring that reduced the ownership layers upstream of the non-metallic miner from six to two, and during the period was added to the IPSA.

**Bci Group (BCS: BCI)** — The U.S. Federal Reserve approved the corporate reorganization of the Chilean bank, authorizing Bci Group as a Bank Holding Company with control over two independent banks: Bci — including its Miami and Peru operations — and City National Bank of Florida; the next step is a one-for-one share exchange offer to bring the bank's current shareholders into the new parent company.