Itaú BBA - CHILE – Mining overshadows in October

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CHILE – Mining overshadows in October

November 29, 2017

The poor manufacturing warns that an activity recovery is not set in stone

Industrial production for the month of October came in strong, but the breakdown reveals distortion from the mining component. Mining production has led the activity recovery so far in 2H17, aided by the production pick up following the end to an extensive strike at a major copper mine in 1H17, along with the recovery of copper prices. A low base of comparison further boosted the mining growth rate in October. Meanwhile, in spite of favorable base effects, manufacturing came in well below expectations, contracting 2.9% from September once the index is adjusted for seasonal and calendar effects. The lack of synchronization between the industrial production components will likely raise some concern for the sturdiness of the expected activity recovery ahead.

The industrial production index expanded 5.0% year over year in October (1.1% in September), leading to growth of 3.8% in the quarter ending in October (-1.7% in 2Q17). The 10.5% year over year gain in mining production (3.6% in September), contributed with 4.6pp to the headline industrial production gain in October. Meanwhile, manufacturing production increased a mild 0.6% year over year (Bloomberg market consensus: 4.2%; Itaú: 5.9%). Once adjusted for seasonal and calendar effects, manufacturing rose 0.1%, a notable slowdown from the previous three months. Manufacturing was dragged down by chemical, vehicle parts and beverage related manufacturing. In the quarter ending in October, mining production is up 7.8% (-3.4% in 2Q17), manufacturing grew 0.3% (-0.8% in 2Q17) and utilities posted growth of 2.1% (above the 1.3% in 2Q17). 

Mining activity at the margin is moderating as production returns to near capacity. Mining production grew 29.8% qoq/saar, down from the 40.5% qoq/saar in 3Q17 and 33.2% qoq/saar in 2Q17. The sequential performance of manufacturing is weak with growth of 0.8% qoq/saar (3.1% in 3Q17 and 0.4% in 2Q17). Overall, industrial production gained 12.1% qoq/saar (21.4% in 3Q17 and 1.0% in 2Q17).

We expect growth of 1.7% this year, stable from the 1.6% recorded in 2016. Going forward, higher global growth (supporting copper prices), the monetary stimulus already in place, alongside improved confidence and credit indicators, will support growth. Nevertheless, weak construction and manufacturing alert that such a recovery is not set in stone.


Miguel Ricaurte

Vittorio Peretti

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