Copper production hits 23-year low as Chile loses market share despite record prices

Chile's economy has posted negative readings in five of the seven months of the year so far, and July's data tells the whole story: the Imacec fell 1.5% year-on-year, its steepest decline since March 2023, dragging down growth expectations for President José Antonio Kast's administration and placing immediate pressure on the exchange rate, the equity market, and the government's own narrative on recovery.

The deterioration is, above all, a mining story. Copper output contracted 9.3% year-on-year in July, subtracting 1.3 percentage points from the Imacec, according to the Banco Central. A combination of lower ore grades, scheduled maintenance, and adverse weather conditions —the late-July storms disrupted operations across production sites broadly— explains much of the slump. But the problem runs deeper than the short term: between January and July, cumulative copper output reached just 2.9 million tons, the lowest level for that period since 2003, according to INE and Cochilco data. Chile is losing global market share precisely when the metal's price tops US$6.70 per pound, at record highs. As Esteban Viani, professor in the Master's in Finance program at Universidad Autónoma, notes, the capital is committed —the 2025-2034 mining pipeline totals US$104.549 billion— but only 41% is in engineering or construction. The bottleneck is timelines, permits and infrastructure, not price or demand.

Markets reacted swiftly. The dollar opened higher above $940 after the Imacec release, further fueled by the Federal Reserve's tougher rhetoric and the resurgence of violence in the Middle East, which drove safe-haven buying. By week's end, the exchange rate had strung together five consecutive sessions of gains, consolidating above $930. The IPSA, meanwhile, closed down 1.1%, with losses led by Enel Américas after its share buyback offer wrapped up, hovering around 11,300 points in a session that concentrated more than $930 billion in flows from the rebalancing tied to the index's change of administrator: starting Tuesday, the IPSA will be operated by MSCI, ending nearly eight years under S&P Dow Jones Indices' management, and adds a new component, Pampa Investments, bringing the benchmark's membership to 31.

The fiscal paradox emerging from this backdrop is striking. While real activity contracts, July's fiscal revenues posted their largest increase of the year: up 15.8% in real annual terms, driven mainly by large private mining taxation, which grew 79% year-on-year in real terms accumulating a 41.9% gain for the year, and by property income linked to lithium. The copper price, though not translating into output, does translate into revenue. Budget spending, for its part, showed a real decline in July, allowing the State to record a monthly operating surplus. Year-to-date, government outlays are growing just 0.7%, below the 1.7% authorized by Congress.

That fiscal discipline is no accident: the government is preparing a 2027 Budget with spending growth of up to 1%, and President Kast himself has tempered ministries' expectations, demanding greater efficiency. The fiscal consolidation path envisions reducing the structural deficit from 2.6% of GDP in 2026 to 1.5% by 2030. Experts on the trend GDP committee, who submitted their estimates to Hacienda on August 24, anticipate that trend growth for 2027 will land between 2.7% and 2.8%, slightly above the 2.6% set for 2026, boosted by the momentum of the so-called mega-reform. The official figures will be released on September 4. In parallel, the Executive is advancing the sale of more than 230 state-owned assets —including properties that reverted to the Treasury through vacant estates— aiming to raise US$73 million under the "Se busca dueño" program.

On the legislative front, the Ministerio de Hacienda is preparing for next week a capital markets reform bill whose centerpiece will be a mortgage portfolio buyback fund aimed at lowering home loan rates. The initiative is complemented by a VAT suspension on housing, an expansion of DFL-2, and a state subsidy on the interest rate. The narrative Hacienda is preparing points to a "citizen stamp" focused on young families. The reform faces, however, a difficult Congress: the government already had to downgrade its controversial constitutional security reform to "simple" urgency due to lack of support, including from its own lawmakers.

The private sector, meanwhile, is not waiting. The Comité de Ministros approved two large investment projects totaling nearly US$6 billion: the Aguas Marítimas desalination plant by Cramsa Infraestructura (US$5 billion) and the extension of the Valparaíso-Quillota-La Calera metro line by EFE Trenes de Chile (US$811 million). Canadian miner Capstone, which operates in the Atacama district, acquired the San Pietro project for US$25 million in shares, consolidating its position among Mantoverde, Santo Domingo, and Sierra Norte. And Colbún, the Matte group's power arm, obtained unanimous environmental approval for its Cuatro Vientos wind farm in Los Lagos, with a US$540 million investment and 346 MW of installed capacity, the largest project approved in that region.

Next week will be decisive on multiple fronts: the official release of trend GDP and the long-term copper price will set the fiscal framework for the 2027 Budget; the US ISM manufacturing index and July employment figures will determine whether the case for another Fed hike in September consolidates —money markets already price in more than two-thirds probability— and with it the pressure on the Chilean peso. Domestically, the market will assess whether July's mining data is a floor or the start of a deeper trend. With annual GDP at risk of falling below 1%, according to analysts cited by Diario Financiero, the coming weeks will test both the official recovery narrative and the Banco Central's ability to manage an external scenario that is deteriorating by the day.