Copper and Chile go hand-to-hand. The Latin American nation accounts for about one- third of global supplies, so its lead in the market for the red metal market is unquestionable. As such, it is sometimes easy to overlook neighbouring Peru.
But Peru -- which on Sunday elected a new left-wing president -- could be as crucial to the copper market as Chile over the next five years. Macquarie, the Australian bank that is a specialist in natural resources, estimates that Peru will account for a hefty 32 per cent of global mine output growth over the next five years. The path that the new president follows could therefore have a big impact.
Ollanta Humala, who won the Peru poll according to preliminary results, has promised to raise taxes on the mining sector, potentially raising millions of dollars but also hampering projects. With global supply and demand of copper in a precarious balance and prices close to an all-time high, any delay in Peruvian projects could have huge implications.
It is early days, but if Mr. Humala goes ahead with the tax rises some projects could suffer delays. Those for 2013 and 2014 do not appear to be at risk. But expansion plans and new mines for 2015 and 2016 - years in which Peru would account for more than half of the global increase in copper mine output - could certainly suffer.
Peru is already the world's second largest copper producer, equal with the U.S. but ahead of China and Indonesia. Over the next five years, its importance is poised to grow on the back of a string of expansion plans and new projects led by London-listed Xstrata and Anglo American, Freeport McMoran of the US, China-based Minmetals and Grupo Mexico.
Mr. Humala has suggested Peru could raise corporate tax rates on miners to 45 per cent, from a current 30 per cent. (Miners also pay royalties of about 1-3 per cent.) The current rate is low by international standards and is below the 35 per cent rate levied in Chile.
Miners in Peru generally have so-called stability agreements that protect them from any tax increases but some of these, negotiated during the 1990s, are about to expire. If taxes rise, some miners could reconsider their projects. The threat to the copper market is serious, even at current prices, because costs have increased over the last few years - making the economics of the projects more precarious.
Will Mr Humala go ahead with the proposed rise? Certainly, he has suggested corporate taxes need to increase. "In Peru people know there has been economic growth, but at the same time it hasn't necessarily reached them," he told Reuters in a recent interview. "We think a tax must be crafted for windfall profits when they arise. Why can't the state take a cut? It has to."
If it does, investors should be ready for higher copper prices.