Strategy Note /

Peru unlikely to nationalise Copper, the key metal for renewables and EVs

  • Peru mines 12% of global copper, like Russia or Saudi in oil. Copper essential for renewable energy, electrical vehicles

  • Leftist presidential candidate evokes Venezuela fear; Castillo is scoring c41% in recent polls (run-off vote on 6 June)

  • Even if disavowal of his party's nationalisation calls is insincere he is unlikely to control a rightist Congress anyway

Peru unlikely to nationalise Copper, the key metal for renewables and EVs
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
28 April 2021
Published byTellimer Research

The leading candidate in Peru's Presidential election, Pedro Castillo, is left-wing and his party's public policy proposals include nationalisation of the mining sector. It is ironic that the same uncooperative legislature, which derailed former President Martin Vizcarra from pursuing the anti-corruption agenda that grounded his popularity, may prove the ultimate constraint on any impulse to nationalise copper mines if leading candidate Pedro Castillo becomes President Castillo. His Free Peru party has the largest seat count but with only 28% of the total and a combination of the four largest right-leaning parties have 56%.

Copper, because it is a highly conductive, is an essential input into the renewable energy and electric vehicles sectors, and it is completely recyclable. (Copper is therefore also essential for ESG investors to realise hopes on issues such as CO2 emission reduction.) The secular growth outlook for these sectors, the expectation of a cyclical rebound in construction, aided by Biden's stimulus in the US, and the partial rotation out of Technology into Commodities, amid higher US yields, has driven copper price up by 90% in the last year, almost 30% ytd, and over 10% in the last month alone.

Peru drove 12% of global copper output in pre-pandemic 2019, similar in size to Saudi or Russia in the oil market. Regardless of the result of the 6 June Presidential run-off vote, fears over nationalisation are likely overdone. Copper prices may continue their rise because of the demand-led factors mentioned above, but a major supply shock, similar Venezuela post-Chavez in the oil market, looks far fetched.

Peru in Copper output is similar to Russia or Saudi in Oil

Copper price's electrifying increase over the last year

Peru Presidential run-off vote on 6 June, but Congress already decided

The disaffection of large sections of Peru's population, particularly in poorer and more rural parts, with its political elite, based on a perception of deep-seated and unresolved corruption following the Odebrecht scandal and the economic disruption from Covid-19 lockdowns in the last year, has led to the emergence of a left-wing populist leading the Presidential race and the Congressional electoral failure of the Contigo party of corruption-tainted former President Pablo Kuczynski and other established parties.

Pedro Castillo scored 19% of the vote in the first round of the election on 11 April and 41-42% in three polls published in the last week (IEP, Datum, Ipsos). The second round (run-off) vote between Castillo and Keiko Fujimori (who polled 22-31% in the same surveys) is scheduled for 6 June.

Fears over nationalisation of copper mines specifically in Peru, as opposed to a general shift leftwards in economic policy (eg on taxes, welfare, constitutional reform in favour of rural rights), should be tempered partly by Castillo's efforts to disavow the part of his Peru Libre party's published manifesto, submitted to the elections agency, which refers to nationalisation of strategic sectors, including mining.

"I completely reject those that say that Pedro Castillo is going to nationalize." Pedro Castillo in an interview with Radio Exitosa.

However, more important than Castillo's words (or his opponent who seeks to label him as a reincarnated version of Venezuela's Chavez), is the likelihood that even if he wins the presidency he will be constrained by a highly fragmented Congress over which he exerts little control. His own party won merely 28% of seats. Peru is not an executive Presidential system; legislative power sits with Congress.

Peru Congress dominated by right and centre parties, so a Castillo Presidency would likely not have legislative control

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