Mining Sector's Worst Month in Three Decades Hammers Chilean Markets

Chile's economy today is accumulating a constellation of negative signals pointing to the same breaking point: the country that produces one-third of the world's copper is being hurt, precisely, by its own mining sector, and financial markets are not waiting for policy to correct course.

The Central Bank reported on Thursday that the August Imacec posted a 1% year-over-year contraction, a figure that would have been worrying on its own but takes on a different dimension when its composition is analyzed. Mining fell 17.4% in annual terms and 10.7% in seasonally adjusted terms, reaching according to Santander its lowest activity level since 1996. That occurred, moreover, on an already weak comparison base, given that August of last year had been affected by the shutdown at El Teniente. Non-mining Imacec grew just 1.4%, insufficient to offset the weight of the extractive collapse. With this, activity has accumulated a 0.5% decline in the first eight months of the year, and economists have begun to speak openly about the possibility that 2026 GDP could close in negative territory.

The market reaction was immediate and severe. The Chilean stock exchange closed in the red for the sixth consecutive session, in what is already shaping up to be its longest losing streak in months. More revealing still was the move in fixed income: investors flocked en masse to buy peso-denominated bonds maturing in 2033, driving yields down by more than ten basis points, a signal that the market is betting the Central Bank will have to hold or cut rates in the face of deteriorating activity. Equities now compete at a disadvantage against local debt that becomes more attractive by the week. Meanwhile, the exchange rate jumped to $985.65 per dollar at the close, its highest level since April 10 of last year, driven both by Imacec weakness and by global factors: the dollar index advanced 0.6% to 102 points, its highest level in 18 months, ahead of the U.S. non-farm payrolls report scheduled for Friday. The peso closed its worst quarter against the dollar since 2024.

Adding to that currency pressure is a global energy market that tightened abruptly. Brent crude surpassed $100 per barrel, advancing 2.18% to $100.17, after Reuters reports indicated that state-owned PetroChina canceled scheduled gasoline and jet fuel shipments for October, seeking to preserve China's domestic supply. The rise comes in an already tight context from the effects of the conflict between the United States and Iran and the escalation of the war in Ukraine. For Chile, a net energy importer with an economy that depends on diesel for much of its logistics and mining, the simultaneous crossing of oil above $100 and the dollar above $980 represents a double-edged inflationary blow.

What makes this day particularly contradictory is that, at the same time the data confirmed the worst mining performance in three decades, Sierra Gorda SCM —controlled 55% by Poland's KGHM and 45% by Australia's South32— formalized with a first-rock ceremony the start of its fourth grinding line, a US$725 million project that promises to increase its copper production capacity by 26% and generate more than 900 direct jobs and 3,800 indirect ones when it reaches full capacity in the second half of 2030. President Kast, present in Antofagasta for the event, emphasized that "we have shown that Chile is a reliable country." It is a narrative the government urgently needs, and one that Sierra Gorda's foreign investment offers as a concrete argument, but it clashes head-on with the image of a sector that this same month saw two fatal accidents in little more than a week —one at Minera Escondida and another at Codelco's Radomiro Tomic Division— and that faces a Mining Commission of the Chamber of Deputies that will travel to Antofagasta to hold sessions in the very terrain of the safety crisis. Unions openly question whether government pressure to reach six million tons of annual production is exacting a human cost.

On the fiscal front, the debate over the 2027 Budget continued to heat up. Finance Minister Jorge Quiroz admitted that if the traditional methodology of comparing against the budget approved by Congress is used, public spending will grow 2.7% and not the 1.5% President Kast announced in a national address. The distinction, which the government justifies by arguing it prefers to compare against what was effectively executed, was received with skepticism by the opposition and by economists who question the transparency of the fiscal signal. Representative Parisi went so far as to ask whether the promised US$6 billion adjustment was "a metaphor." Regional governments, meanwhile, face a 6% cut to their budgets and are preparing a legislative offensive for Monday. Economists estimate that the fiscal impulse could add up to half a point to 2027 GDP, but that presupposes an economy that will have already bottomed out this year, an assumption that today looks less solid than it did a week ago.

The capital markets reform, MK4, advanced in the Chamber's Finance Commission with eleven votes in favor and only two against, but the debate over the National Housing Fund (Fonavi) concentrated the most serious warnings. Former Minister Ignacio Briones questioned the rationale for the vehicle and warned about its incentives. AFP Provida publicly objected to the squeeze-out clauses and the reduction of the two-thirds quorum for relevant decisions in corporations, warning that these measures reduce the power of minority shareholders —precisely the pension funds— to the benefit of controllers. The article-by-article vote is scheduled for October 20 and 21, and the text that emerges from that process could be materially different from the one that was introduced.

On the corporate front, Arauco opted to postpone the placement of its fifth hybrid bond in Chile's history, which could have raised up to UF10 million, citing strong volatility in global interest rates. The decision underscores how adverse current financing conditions are, even for top-tier issuers. In contrast, Banco BICE successfully placed senior debt in Switzerland for US$138 million, with a four-year tenor at a rate of 1.98%, its second placement in that market, demonstrating that access to international financing in Swiss francs remains viable for well-positioned Chilean issuers.

In the retail sector, regional expansion continues independent of the local cycle. Mallplaza, a subsidiary of Grupo Falabella, closed on Thursday the purchase of eight Gran Plaza shopping centers in Colombia for US$353 million, consolidating itself as the country's second-largest operator with thirteen centers and more than 460,000 leasable square meters, equivalent to 18.4% of its regional footprint. The assets recorded 57 million visits last year and net operating income of US$33.2 million in the last twelve months. In parallel, Ripley is evaluating land and acquisitions in Peru, and Mallplaza is preparing a project in San Isidro, Lima, that would target the higher-income segment of the Peruvian capital, where domestic consumption maintains a dynamism that contrasts with the sluggishness of the Chilean market.

Next week will determine several things at once: the start of the legislative debate on the 2027 Budget on Monday, with regional governors already on the warpath; the Central Bank meeting in an environment where the market is pricing in lower rates; Friday's U.S. payrolls data, which could amplify or reverse the dollar's strength; and the publication of detailed budget line items, which will take the political debate to its most granular point. For mining, pressure on worker safety and the question of how long it will take Sierra Gorda's new installed capacity to offset August's historic collapse will remain the data points analysts will watch most closely.

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