Macro Monday 54~Chile & Peru - Worlds Largest Copper ProducersMacro Monday 54
Chile and Peru
The Largest Copper Producers in the world
A staggering 36% of the global supply of copper originates from Chile and Peru. With AI, semiconductors and big tech leading the furore in markets, isn’t it any wonder that both countries are demonstrating incredible growth. Being the largest producers of copper in the world during one of the biggest tech booms in history seems like a golden era may be upon them. The wind is hitting the Chilean and Peruvian market sails hard and as investors, we need to pay close attention to these well placed emerging markets leading the way in South America.
Chile is responsible for 24% of global copper production producing 5 million tons of copper ore in 2023 and Peru was the 2nd largest producer contributing to 12% of the global supply at 2.75 million tons.
Copper plays a crucial role in semiconductor manufacturing which is booming at present with the likes of NVIDIA’s stock price soaring by over 1000% since Oct 2022. Copper is used for the connecting components via patterns on the wafer chips, it is very conductive minimizing energy and speed loss during signal transmission, its malleable for intricate wiring, and it manages/dissipates heat very well. Copper is also combined with other materials like silicon dioxide to create complex structures like transistors, capacitors and resistors. All these components are absolutely essential for semiconductors, technology hardware and general computing, meaning the demand for copper from both these countries is likely to continue. Chile is also the 2nd largest Lithium producer in the world giving it an additional advantage in the battery market.
Chile
GDP Growth
According to the Chilean Central Bank GDP growth rate of up to 3% can be expected in 2024. The central bank in the world's largest copper producer also estimated copper prices to average $3.85 per pound in 2024, up from a previous forecast of $3.80 per pound. Copper is currently at $4.64 per pound and looks to be rising (previously having hit $5.19. This may suggest the Central Banks assertions have been modest across the board.
Main Produce/Exports
Chile plays a significant role on the global stage in several key areas:
Copper: Chile is the world’s largest copper producer. Its abundant copper mines contribute significantly to global supply.
▫️ Lithium: As the second largest lithium producer, Chile benefits from the growing demand for lithium used in batteries for energy storage. This mineral has become an important source of exports and fiscal revenue for the country.
▫️ Renewable Energy: Chile is richly endowed with solar and wind resources. It has a comparative advantage in renewable energy production, with solar and wind costs lower than fossil fuels. The country’s shift toward renewable energy could boost economic activity and contribute to the global green transition.
▫️ Cobalt (Emerging): While not currently the largest producer, Chile aims to become one of the top three cobalt producing nations. This ambitious plan aligns with its efforts to boost copper output. Cobalt is primarily used in lithium-ion batteries, powering devices like smartphones, laptops, and electric vehicles.
These contributions position Chile as a dynamic player in global markets now and into the future.
Population
Chile has a population of 19.6 million people of which c. 68% are between the age of 15 - 64 years of age. c.19% of the population are under the age of 14. Chile’s population growth has been decreasing since 1990 due to a declining birth rate a thus this would be a long term concern for the sustainability of the workforce.
Demographic and History
Chile was colonized by the Spanish and the main language spoken here is Spanish. White non-indigenous now make up almost 90% of the population with the native Mapuche makes up most of the remaining 10%. However, a genetic study found that the average Chilean’s genes are approximately 35% Amerindian (native) and 64% Caucasian. Many Chileans self-identify as white, while others identify as mestizo or indigenous The Spanish colonization of Chile began in the 16th century when Spanish conquistadors started to explore and settle the region. Chile remained a colony until 1818, when it gained independence from Spain. During this period, the settlers focused on agriculture due to limited precious metal resources. The colony’s economic development was marked by exports of agricultural produce, saltpeter (potassium nitrate), and later, as we are aware copper.
Peru
GDP Growth Rate
According to the Organization for Economic Co-operation and Development (OECD), Peru’s GDP will rise to 2.3% in 2024 and 2.8% in 2025. These increases are supported by more favorable financial conditions and reduced inflation that will bolster domestic demand.
Main Produce/Exports
Peru has made significant strides in various sectors, becoming a major player on the global stage. Here are some notable areas where Peru stands out:
Blueberries: In just a decade, Peru has transformed from having virtually zero blueberry plantations to becoming the world’s largest exporter of blueberries. With more than $1.36 billion worth of blueberries sold overseas last year, it ranks third in global production, behind only China and the US – however is the lead exporter.
Copper: Peru is a significant copper producer, with major mines like Cerro Verde leading the way. Peru achieved a steady production of 2.75 million metric tons, surpassing the Democratic Republic of Congo and securing its position as the world’s second largest copper producer.
Natural Gas: Pluspetrol Resources Corp, Hunt Consolidated, and Repsol are the largest producers of natural gas in Peru, contributing to the country’s energy sector.
Agricultural Exports: While not the largest producer, Peru is a major exporter of agricultural products. For instance, it supplies a significant portion of the world’s asparagus and avocados. Peru supplies approximately 10% of the world’s avocados and around 20% of the global asparagus supply. Peru is the 2nd largest Avocado producer in the world.
These achievements highlight Peru’s diverse contributions to the global economy.
Population
Peru has a population of 34.4 million people of which c.66% are between the age of 15 – 64 years of age. c.25% of the population are under the age of 14. . Peru’s population growth is driven by factors such as a historically higher birth rate than the death rate, urbanization, improved life expectancy, and immigration (people from Bolivia, Ecuador, and Colombia have moved to Peru for work and other reasons). The latter suggests that Peru is turning into a country of opportunity for many South Americans.
Demographic and History
Peru is a multiethnic country formed by the amalgamation of different cultures and ethnicities over thousands of years. The Spanish conquest of the Inca Empire was a pivotal campaign during the Spanish colonization of the Americas. In 1532, conquistador Francisco Pizarro and his allies captured the Inca emperor Atahualpa, marking the first step in a long campaign. Over decades of fighting, the Spanish ultimately triumphed in 1572, leading to the colonization of the region as the Viceroyalty of Peru. The conquest had far-reaching effects, including spin-off campaigns in present-day Chile and Colombia, as well as expeditions into the Amazon Basin. The Inca Empire, once spanning vast territories, was assimilated into the Spanish Empire
Approximately 60% of Peruvians self-identify as Mestizos, representing mixed Spanish and Amerindian ancestry. Around 20% of the population identifies with Quechua heritage, while about 5% have European ancestry. Additionally, 3% of Peruvians have African roots, and 2% identify as Aymara’s. This rich ethnic diversity contributes to Peru’s unique culture and multicultural identity.
Peruvians exhibit a fascinating genetic diversity shaped by their complex history.
Let's explore some key findings:
1. Chachapoyas Resilience: Contrary to historical accounts, genetic and linguistic research suggests that the ancient Chachapoya people (referred to as "Warriors of the Clouds") fared better than previously believed. Despite Inca conquests and colonial rule, their cultural and genetic traces endured. The Chachapoyas' fortresses and sarcophagi in the Amazonian cloud forests remain a testament to their resilience.
2. Amerindian Ancestry: Modern Peruvians have predominantly Amerindian genetic ancestry. This includes indigenous populations from the Andean, Amazonian, and Coastal regions of Peru.
3. European Influence: Many Peruvians are descendants of Spanish settlers from the colonial era. Additionally, European ethnic groups (such as Italians, Germans, British, French, Irish, Dutch, Portuguese, Polish, and Croats) arrived in the 19th and 20th centuries, contributing to the genetic mix.
4. High-Altitude Adaptation: A genetic mutation in the EPAS1 gene helps Andean highlanders thrive at high altitudes by lowering haemoglobin levels in their blood. This adaptation allows them to cope with the challenges of living in mountainous regions.
In summary, Peruvian genetics reflect a rich tapestry of indigenous heritage, European influence, and adaptations to diverse environments.
Peru has the 2nd largest city in South America
Its worth noting that the largest city in Peru, Lima (the capital) is the 2nd most populated city in the whole of South America with 10 million people after São Paulo in Brazil which has 22.8 million people. Founded in 1535 as the Ciudad de los Reyes (Spanish for “City of Kings”), it is situated in the valleys of the Chillón, Rímac, and Lurín Rivers, overlooking the Pacific Ocean. Lima serves as the political, cultural, financial, and commercial centre of the country.
Now for some great charts for both Chile and Peru which suggest these countries indexed ETF’s will soar in coming months and years.
📈CHARTS
iShares MSCI Chile ETF- AMEX:ECH
The iShares MSCI Chile ETF (ECH) seeks to track the investment results of a broad-based index composed of the largest market cap weighted Chilean equities. As of the most recent data available, its top holdings include:
1.Sociedad Quimica Y Minera De Chile: A major chemical and mining company.
2.Banco De Chile: One of Chile’s largest banks.
3.Banco Santander Chile: Another prominent bank.
4.Empresas CMPC SA: A diversified company with interests in forestry, paper, and packaging.
5.Empresas COPEC SA: Involved in energy, forestry, and retail.
6.Enel Americas SA: A utility company.
7.Banco de Credito e Inversiones SA: A financial institution.
8.LATAM Airlines Group SA: A major airline.
9.Falabella SA: A retail conglomerate.
These holdings represent a diverse mix of sectors within the Chilean economy. Lets look at the chart.
Monthly Candlestick Chart
▫️ You can clearly see a pennant forming and compressing price. Bollinger bands are also very tight on this monthly chart suggesting a break out is looming.
▫️ You can observe a series of higher lows with wicks pressing up price which is major positive.
▫️ There is a great Risk to Reward trade structure which is essentially a 10:1 reward to risk trade.
▫️ A break above the Point of Control (the red line) would be a positive signal.
The wind at our back in this trade
As discussed above, factoring in that Chile is projected to have a 3% GDP growth in 2024 and holds a significant strategic mining position in providing 24% of the worlds copper during a tech boom, the country is likely to continue to perform, as will its major mining and agriculture companies in the coming years. Being the 2nd largest producer of Lithium globally (critical to the battery market) and aiming to be the 3rd largest producer of cobalt (critical to lithium-ion batteries) will further enrich and contribute to this budding economy.
MSCI Peru NTR Index - $MPU!
The MSCI Peru NTR Index is designed to measure the performance of the large and mid-cap segments of the Peruvian market. It covers approximately 85% of the Peruvian equity universe and consists of 3 main constituents. Here are the top three components of the index:
1.Credicorp: A major financial institution in Peru.
2.Southern Copper Corporation: A significant player in the mining industry, particularly in copper.
3.Buenaventura Minas ADR: A company engaged in mining and exploration activities.
These constituents collectively are the main contribution to the index’s representation of the Peruvian equity market.
•NTR: Net Total Return. This means the index accounts for dividends (income generated by holding the stocks) and adjusts for withholding taxes.
▫️ We can clearly observe an ascending triangle that has broken out to new all-time highs.
▫️ There is a stricter trade (only allowing for 4.5% downside) as it is only a 3:1 reward to risk but the trade has potential to be a 6:1 if the 1.618 fib ext level is reached.
▫️ Price could bounce at the recent lows at approx. $3,160 however that would be reaching towards an 8 ▫️ 10% loss that we cannot entertain on this trade as it only 3:1 reward to risk in lessor case scenario.
It is worth noting that iShares also have Peru ETF Index which appears to suggest a breakout from a larger first forming pennant has occurred. The components for the index differ from the above.
iShares MSCI Peru and Global Exposure ETF - AMEX:EPU
This index has not performed as well as the above MSCI Peru NTR Index - $MPU!, however it provides a lower denomination at $51.43 a share and does suggests that a major breakout might be on the horizon, similar to the breakout on the NTR index. Could it just be following its tracks?
The structure of the EPU is different to the MPU! In summary the difference between them is that the EPU generally only invests 80% of its assets into the component securities of the MSCI Peru All Capped Index whilst the remaining 20% (and this is main difference) can be, if warranted, more actively managed and utilised in futures, options, swap contracts, cash equivalents and securities not included but are believed to track or outperform the index.
The chart looks very interesting:
▫️ We have a first formed long term pennant. What is so interesting is that the some other South American Countries like Brazil in the iShares Brazil Index AMEX:EWZ chart and the iShares Latin America 40 , all have similar pennant patterns forming but seem to be lagging and have not broken out. Could this suggest that Peru and Chile are leading all these pennants which will eventually lead to a Latin America Emerging Market major opportunity? Time will tell…but its looking promising.
▫️ The above chart has a short term 4:1 Reward to Risk with long term major upside potential.
The wind at our back in this trade
Peru is projected to have a to 2.3% GDP growth rate in 2024 increasing to 2.8% by 2025. Similar to Chile, Peru is a global leader in copper production coming in as the 2nd largest producer in the world after Chile. This means Peru will benefit from providing copper for the tech, AI and semiconductor boom much like Chile. Peru is also the largest exporter in the world of Blueberries and is the 2nd largest exporter of avocados. Peru hosts the 2nd most populous city in the whole of South America, Lima which has 10 million people, coming 2nd only to Sao Paulo in Brazil with 22.8 million people. Peru has population growth is considered to be increasing and people from Bolivia, Ecuador, and Colombia have been increasingly moving to Peru for work and other reasons. The latter suggests that Peru is turning into a country of opportunity for many South Americans. From a review of all of the above, Peru appears to be firmly in growth mode and is attracting people from neighbouring countries as one of the new burgeoning hubs of South America.
Gold Production: Chile vs Peru.
I am aware that copper is a by product of gold mining so I was curious was gold mining major in either countries, and was a copper, essentially just by product. Copper is more likely to be a byproduct of gold mining rather than the other way around. What I found was surprising.
Chile is ranked 25th in the world for gold production whilst Peru is the world’s 9th largest gold producer accounting for approx. 3% of the global supply of gold. Leading gold producers in Peru include companies like Newmont, Pan American Silver, Hochschild Mining, Gold Fields, Compania De Minas Buenaventura SAA, and the infamous Glencore. This gives Peru quite the edge over Chile in terms of commodity diversity and quality. Notwithstanding this, Chile is undergoing promising exploration ventures at present and might in years to come become a notable gold miner/producer.
We cant close off this Macro Monday without a review of the main commodity offered by Chile and Peru.
Copper Futures - COMEX:HG1!
Chart speaks for itself:
▫️ 10:1 reward to risk
▫️ Long term ascending triangle with 112% target
▫️ Pennant currently forming which when it breaks up or down will inform us whether to sit on our hands or pull out.
▫️ Limited 10% downside risk to a 100% potential return.
▫️ Beautiful chart demonstrating a series of higher lows with what appears to be congestion ahead of a breakout or…. Breakdown.
And that’s it for this week folks, we have the wind at our backs for all of the above trades.
All these charts are available on my TradingView Page and you can go to them at any stage over the next few years press play and you'll get the chart updated with the easy visual guide to see how Chile, Peru and the Copper Futures market are performing. I hope its helpful.
PUKA
