The second largest copper producer in the world enters a state of emergency and the price of Lun copper is close to an all-time high again.

On the evening of Monday (April 4) local time, Peruvian President Castillo (Pedro Castillo) declared a state of emergency for the Council of Ministers. The capital Lima and Cayao imposed a curfew from 2 a.m. to 23:59 on the 5th and lasted until 11:59 on the 5th.

Castillo said the curfew was aimed at "rebuilding peace and internal order" and called on people to exercise restraint and calm during the curfew.

Recently, transport strikes have broken out in many parts of Peru to protest against the high prices of oil, road tolls and basic materials in the country. Peruvian Defense Minister Gavidia said on the 4th that four people have been killed in protests in the central city of Wancayo.

In view of the increase in violence caused by the protests, some large shopping malls and wholesale markets have chosen to temporarily close to prevent looting. Offline classes have been suspended at many universities, including the University of Lima in Peru.

Inflation may be the main cause

Peruvian economy and Finance Minister Oscar Graham said in an interview last week that Peru faces the risk of an "extension" of the war between Russia and Ukraine, with domestic prices rising at the fastest monthly pace in 26 years in March.

The data showed that Peru's consumer price index (CPI) rose 1.48 per cent in March from a month earlier, the highest level since February 1996 (1.53 per cent), and a year-on-year increase of 6.82 per cent, well above the central bank's target of 1-3 per cent.

Inflation in the world's second-largest copper producer was 6.43 per cent in 2021, the highest level in 13 years. "We are a net importer of oil and corn, and geopolitics has a significant negative impact on families," Graham said. "

He added that the Peruvian government was evaluating a doubling of the budget for social projects to mitigate the impact of inflation on vulnerable groups. According to the latest report, Peru has passed a bill to raise the minimum wage by 10% and cut fuel and food taxes.

Peru to tax excess profits in the mining industry

According to 2019 data, Peru is the world's second-largest copper producer, with a share of more than 10%, second only to Chile, which is also a South American country.

Therefore, the news from Peru affects the global copper market all the time. Although Russia's share of copper production is less than 5%, the war between Russia and Ukraine has caused soaring prices of energy and agricultural products, which has plunged Peru into riots as far away as South America, indirectly pushing up international copper prices. Copper futures jumped above $10500 a tonne, near the all-time high hit in March, by the end of the day.

Mr Graham said Peru needed to better distribute mining wealth to ordinary people to quell protests against the mining industry. "the government is considering tax adjustments with a focus on excess profits, and how the specific tax rates will be adjusted is still being assessed."

But mining groups have repeatedly complained that Peru's mining industry has a higher tax burden not only than neighbouring Chile, but also Canada and Australia, mining powers that compete directly with Peru.

"the tension in the copper market is not just a matter of price."

Richard Adkerson, president and CEO of Freeport-McMoRan Inc., the world's largest copper and gold miner, said last Wednesday that the tension in the copper market was "not just a matter of price."

Mr Akerson added that Freeport was profitable, but deteriorating deposit quality and a harsher operating environment made it impossible for the company to accelerate projects significantly, "even if copper prices doubled overnight. It will still take us years to significantly increase production."

Demand for copper will soar in the clean energy transition, he said. "the market will demand it much faster than companies like us can produce it." Barring severe economic stagnation, copper will become very scarce as demand in the electric car and renewable energy industries picks up.