Chile, the world's top copper producer, is on pace for a steep drop in 2022 copper output due to lackluster ore grades, labor woes and water scarcity, among other issues undercutting the country's miners.

Chile's mined copper production slumped 6% in 2022 through July, according to the most recent International Copper Study Group data. In turn, falling mine output has squeezed Chile's copper shipments abroad. Year-to-date ore and concentrate exports are down 12.8% to 1.59 million tonnes compared to the same seven-month period of 2021, according to U.N. Comtrade and Panjiva data.

Copper will be essential to decarbonization, and Chile's falling production comes amid growing fears over longer-term copper shortages that could imperil global energy transition goals. Chile's mined copper output is forecast to fall 4.8% to 5.36 Mt in 2022, though it is expected to rebound to 5.97 Mt in 2023, according to S&P Global Commodity Insights analysts in a Sept. 26 market update.

"[The] biggest issues are water and labor," David Davidson, a base metal mining analyst at investment firm Paradigm Capital, said in an email, noting that the final few months of 2022 could bring fresh disruptions to major operations in Chile.

"We'll see if Antofagasta PLC can avoid a strike at Los Pelambres in the coming weeks," Davidson said.

Workers at Antofagasta's Los Pelambres mine have voted to strike after rejecting a proposed contract. News of the potential strike follows water shortages and operational issues that forced Antofagasta to revise its 2022 copper output, which is now 640,000 tonnes to 660,000 tonnes, down from a previous estimate of 660,000 tonnes to 690,000 tonnes.

State-owned Codelco slashed 2022 production guidance, revising expected output down to 1.49 Mt to 1.51 Mt of copper from 1.61 Mt. Codelco, the world's top copper miner by output, cited lower grades at its Ministro Hales mine and poorer processing and recoveries at the Chuquicamata and El Teniente mines as weighing on production.

Better outlook for 2023

Chilean copper production looks set to improve in 2023, thanks in part to fresh output from newer operations such as Teck Resources Ltd.'s Quebrada Blanca phase 2, or QB2, project, analysts said.

"With QB2, [BHP Group Ltd.'s] Spence and Capstone Copper Corp.'s Mantos Blancos sulfide circuit, there should be adequate [new capacity] to keep overall production flat to slightly up over the next couple of years," Davidson said. To expand output, BHP commissioned a $2.46 billion concentrator plant at Spence earlier in 2022.

Waning fears over new mining taxes in Chile, which pushed miners to curtail investment plans, have opened the door to mine builds and expansions. Chile's government is widely expected to soften its stance on proposed higher taxes after Chileans rejected a left-leaning constitution Sept. 4.

"It's pretty clear that calmer heads have prevailed," said Stefan Ioannou, Cormark Securities base metal mining analyst. "Are taxes going to go up there? Yes. But I think they're going to go up to a point where they're in line with places like Canada and Australia and not twice the norm."

Panjiva is the supply chain research unit of S&P Global Market Intelligence, a division of S&P Global Inc.

S&P Global Commodity Insights and S&P Global Market Intelligence are owned by S&P Global Inc.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.