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Economy in Brief

Chile & Copper: Higher Prices Boost Exports & Trade Balance
by Carol Stone July 7, 2006

The recent construction boom in the US and accelerated economic development in China, India and other countries have increased demand for and prices of copper, which is by far the main export of Chile. In trade data reported today and within the last 10 days, it is evident that this has brought much revenue into the Chilean economy.

The trade surplus for June on an fob/fob basis ("freight-on-board": that is, just the value of the merchandise) was $1,784.3 million, nearly double the $963.3 million of June 2005. The central Bank of Chile reports individual import items on a "cif" basis, that is, including "cost, insurance, and freight", so imports are always higher on this basis; the latest actual cif import figure for May was $3,125.3 million compared with an fob number of $3,089.7 million. We estimated June's cif from the recent behavior of the differential ratio that accounts for the insurance and freight components. The resulting fob/cif trade surplus is $1,543.2 million, which compares with $834.3 million a year ago, again, nearly double.

Both exports and imports have grown greatly over the past year. Exports are 40.4% larger and imports 26.4%. In the table below, we see that copper is a substantial portion of Chile's total exports. From June 2005 through May 2006, the value of copper exports had more than doubled, and copper increased to about 56% of exports. This is obviously related to world prices of copper, which we show in the accompanying chart, using the COMEX spot price. For the month of May alone, when prices spiked above $3.76 a pound, copper was 60.8% of Chile's exports. Some bit of price decline occurred in June, and while the details are not available, Chile's total exports fell back by about $430 million.

Among imports, consumer goods are expanding with a strong and consistent uptrend. Intermediate goods other than petroleum are also. Capital goods were gaining sharply, but have fallen back since the beginning of this year. Overall, even as Chile is enjoying its growing trade surplus, it also appears to be spending some of the added revenue on the people and products of the country.

Chile: SA, Millions of US$ June 2006 May 2006 Apr 2006 June 2005 2005 2004 2003
Trade Balance, fob/cif 1543.2E* 2199.6 822.5 834.3 8163.0 7490.7 2296.9
Exports, fob 4894.7 5324.9 3617.5 3485.4 40583.8 32226.6 21660.7
  Copper -- 3237.9 1844.4 1529.2 18307.7 14887.0 7815.5
Imports, cif 3351.5E* 3125.3 2795.0 2651.1 32420.8 24735.9 19363.8
  Petroleum -- 578.9 298.9 332.6 3779.3 2874.6 2125.6
Copper Price** 3.3963 3.7609 2.9641 1.6219 1.6825 1.2898 0.8105
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