Chile mining eyes Chinese economy, global demand

Global demand for copper and lithium should keep Chile's mining industry resilient despite uncertainty surrounding China's economy, its main export market for the red metal.

Although Chinese and Chilean miners are still looking to increase cooperation, China's growth – expected to reach 4.3% this year, according to the World Bank, after expanding 3% in 2022 (a far cry from rates of nearly 7% during the previous decade) – might not be enough to sustain Beijing’s mineral demand and current foreign investment capacity.

“The situation may be even worse for overseas spending, as China's exports are plummeting while imports will rise with the [expected local] recovery. I doubt China wants to run a big current account deficit because of money leaving China to be spent elsewhere,” Alicia Garcia-Herrero, chief economist for Asia-Pacific at French investment bank Natixis, wrote on LinkedIn.

Influencing this outlook are declining productivity in the Asian nation, particularly in construction, the loss of wealth of Chinese households due to problems in the real estate market and the collapse in housing prices, plus an aging population, Moody's Investors Service wrote in a report, warning of another slowdown after 2024.

These factors could "hold back their demand for copper and lithium, although this will be offset by continued global demand for metals for renewable energy technologies, with China processing much of the metals required for clean energy globally," Deborah Tan, assistant vice president for Credit Strategy & Research at Moody’s Investors Service, told BNamericas.

The Chinese economy could still affect Chilean copper operations, as state-run copper miner Codelco sells copper, molybdenum and other by-products through subsidiary Codelco Shanghai, which also operates as a materials supplier for Chilean mines. A Codelco-Minmetals vehicle, Bermuda-based Copper Partners Investment Company was created in 2006 to ensure refined copper supply to China, but the 15-year, fixed price sales agreement reached came to an end in May 2021.

Last year, China’s refined copper demand reached 12.8Mt, accounting for 52% of global consumption, and it is expected to reach 13Mt this year, Codelco chairman Máximo Pacheco told local media in November.

But to hedge against potential reductions in Chinese requirements and increase its sales, Codelco is following a diversification strategy to reduce exposure to China and strengthen business in Europe, North America and Brazil.

Lithium mining looks to be less affected, as Tianqi Lithium, which owns 22% of Chile’s SQM, plans to increase its stake, according to an October statement to Chile's economic prosecutor (FNE). In order to increase its investment in SQM, however, Tianqi needs restrictions that both parties agreed to in 2018 to be relaxed.

In 2022, China’s electric vehicles market pushed global lithium demand up by 40%, according to SQM’s 3Q22 report.

SQM is starting up a lithium hydroxide line at its Sichuan plant, aiming to produce 30,000t/y, and it wants to produce 180,000t of lithium carbonate this year overall. 

Also in 2022, Chinese electromobility company BYD Chile won a mining ministry tender for a quote of 80,000t of lithium production, offering US$61mn, which is currently suspended. The firm continues to express interest in exploting the metal. 

China is engaged in 1,500 mining operations that produce US$400bn a year, according to Canadian government data.