Tag Archives: Chile

China and global energy – it has the wind at its back.

Since 2010 there has been a significant increase in US oil production which has made them much less reliant on other oil producers – oil and gas production has increased over 50% and the US is the biggest producer of both. Being less reliant on oil imports means that the US can now have greater power of nations that they used to import oil from – Iran, Venezuela and Russia. According to The Economist being the biggest producer of gas and oil doesn’t mean as much today for three reasons:

The Economist: – The changing geopolitics of energy. 17th September 2020.
  • There is no longer fossil fuel scarcity as the demand for oil might have already peaked and with an abundance of supply prices have dropped significantly.
  • Countries that are reliant on fossil fuels now realise that for the sake of climate change they need to change their energy source to a more natural option of power.
  • Solar panels and wind turbines generate electricity instantly whilst fossil fuels provide energy to a medium which then generates the electricity.

In considering the above this paradigm shift does more for China than the USA. Even though China is the biggest importer of fossil fuels it is a leading exponent of renewable energy at gigawatt scales. However China is in a very good position to secure oil imports as:

  • The increase in supply from new sources – Brazil, Guyana, Australia (LPG), and shale from the US – has meant a buyers market and this has suited the Chinese.
  • China is also in a very strong position with those struggling oil producing countries in that it has given them oil-backed loans.
  • China Development Bank lent two state-controlled Russian companies, Rosneft, an oil producer, and Transneft, a pipeline builder and operator, $25bn in exchange for developing new fields and building a pipeline which would supply China with 300,000 barrels of oil a day.

China energy sources:

  • Coal-fired – more than 1,000 gigawatts (GW) of generating capacity which makes it the world’s biggest carbon-dioxide emitter. Coal use is set to expand in the years to come.
  • Wind and solar capacity – 445GW, vast though it is by most standards, But China also has Hydropower capacity – 356GW of more than the next four countries combined.
  • Nuclear power – building plants faster than any other country; nuclear, which now produces less than 5% of the country’s electricity, is set to produce more than 15% by 2050.

Wind and Solar

Both wind and solar power require raw materials to be functional – non-ferrous metals like copper. Batteries require zinc, manganese and potassium. Although there is a lot of supply of these commodities it is the difficulty of getting them to the market that is the problem. China has helped here through domestic investment – it now produces 60% of world’s ‘rare earths’. It now looks overseas to Chile to secure lithium on which batteries now depend on.

China – produces more than 70% of the world’s solar modules and can produce over 50% of its production of wind turbines. It dominates the supply chain for lithium-ion batteries – 77% of cell capacity and 60% of component manufacturing. In 2019 China eased restrictions on foreign battery-makers – costs of solar panels and batteries have dropped by more than 85% in the past decade.

To maximise its electrostate power China needs to combine its renewable, and possibly nuclear, manufacturing muscle with deals that let its companies supply electricity in a large number of countries.

Source: The Economist – The changing geopolitics of energy. 17th September 2020

Chile looks to cherries for transition away from copper

As with a lot of developing countries (and developed countries for that matter) there tends to be a reliance on a particular resource which can be to the detriment of its economy. Invariably if an economy is going to become more resilient it must be able to diversify into other areas that generate growth.

Traditionally Chile has relied on copper which accounts for over 50% of its export value but if it is going to become more developed it must start to rely on other goods or services. In November 2017 a free trade agreement (FTA) between Chile and China was signed and this was the catalyst for the cherry industry to flourish. Garces Fruit, just south of the capital Santiago, has become the world’s biggest producer of cherries and the development of the industry has been due to a combination of the government and the private sector. Cherries in China are viewed as a symbol of prosperity and marketed as something closer to a luxury product rather than ordinary fruit. With the harvest in Chile around the Chinese new year they make a perfect gift. However the benefits of the primary sector began in the 1990’s, with rising exports of wine, salmon and grapes but farmers are now tearing out vines and replacing them with cherries which are more profitable. Even though the cherry industry requires a lot of labour, which Chileans are not keen on doing, between 2015 and 2017 700,000 immigrants, mainly from Haiti and Venezuela, averted a labour shortage.

Chile Cherry export destination – 2017

Cherries remain the most planted fruit in Chile along with walnuts and hazelnuts due to its high profits and increasing demand from China. However, prices in China decreased with large supplies exported to that market (demand), but China still pays higher prices than the price other country destinations offer to Chilean exporters. China is the top market for Chilean cherries. Chile exported 156,497 MT or 85 percent to that market in 2017 (see graph above), a 109 percent increase over MY2016/17. Chilean cherry export season starts in November and end in February and it focuses its market promotion and export campaigns in China. It is expected that Chilean exports to China will increase to that market since demand for Chilean fruits keeps increasing, and Chilean exporters get higher prices in China for their fruits than in other destinations.

Sources:

The Economist – January 19th 2019 – Bello Adam Smith in Chile

USDA – Chile Report Stone Fruit – 8th October 2018.

Copper prices on the rise with strike action

Copper Prices 2017.pngOver the last few years Chinese demand (or weakness of) has been the main cause of volatile commodity prices. Copper has been one of those commodities but supply factors have also been influential in pushing copper prices to their highest level in the last two years. Strikes and supply disruptions (see graph below) in two of the world’s biggest mines will have a significant impact:

Escondido in Chile (the largest in the world) and Grasberg in Indonesia.

Both mines account for 9% of mined copper supply. One-month shutdown at both mines removes 140,000 tonnes which equates to 0.7% of world output. In both mines labour contracts are up for renewal and they account for 14% of production. The video below from Al Jazeera looks at the strike action by miners at Escondido in Chile where workers are rallying against cuts to pay and benefits by owners BHP Billiton which are designed to  improve productivity. However, in the last three years productivity in the mine is up 48% and the labour force has been cup by 17%.


Add to this more demand from China and there is only one way copper prices can go – it is up 20%.  Resolutions to labour relations are needed in both Chile and Indonesia if supply is to be restored to pre-dispute levels. Furthermore the outlook for copper demand is strong with its importance to electric vehicles and wind and solar energy units. In the long-term, depletion of copper ores will also put pressure on prices northwards.

Source: The Economist 16th Feb 2017. Al Jazeera 23rd Feb 2017

Chile, China and Copper

Chile copperOne cannot underestimate the importance of copper to the Chilean economy. Copper provides 20% of Chile’s GDP and makes up 60% of its exports. Chile’s economy is growing at approximately 6% per year while inflation is at 1% and unemployment 6.4%. Although Chile does have a productive agricultural sector and tourism, the price of copper does have a significant impact on the economy.

Chile has done very well out of the shift of China’s rural population to the more urban areas – new homes with copper wire and pipes are needed. Furthermore Emerging markets everywhere are using vast amounts of copper to put in bridges, cars, fridges and more or less anything that uses electricity. However China’s recent slowdown has caused copper prices to slide by 15% since the beginning of the year.

The Economist reported that in 2000-05 the government’s income from mining averaged $2.1 billion a year. As Chinese growth accelerated, that rose to $11.5 billion a year between 2005 and 2011. But the boom owed almost everything to the copper price. Chile’s output of the red metal has hardly grown in a decade.

The biggest threat to Chile’s copper boom comes from China. If the country that buys 40% of the world’s copper slows further, the price of the metal will fall again and Chile will have rely on something else. Is this another resource curse waiting to happen? Below is a short report from AlJazeerah which also looks at the positives from lower copper prices – lower currency value, the peso, and ultimately more competitive exports.