IKN

Thy sin’s not accidental

Fitch Ratings breaks the big news on Chilean energy crisis…

…that was broken a month ago.

But still, it’s interesting to see a kickbutt heavyweight office full of smart people say that Chile really does have a doozy problem with its energy sector, and it’s not just a figment of this joker’s imagination. Fitch did a more detailed job on supply breakdown and its PDF report is worth a read (that’s on the first link above), but the message is basically the same as the report published February 11th by Hallgarten (gotta pay there) and available freebie at RGEmonitor (hooray):

*Chile’s energy supply is very tight
*Generation costs are soaring
*GDP projections are now out the window
* Brownouts and blackouts are in the cards
*Copper production will be affected
*etc (read the links if you still care)

Also up today was this report from Reuters (in Spanish only so far, but zap it through the Google translator if your Castellano is a bit rusty these days) from Chilean power generation company Colbún. The President of Colbún told reporters that supply conditions were “critical” and “at absolute limits” amongst other gems, and made it clear that the day demand went over the limits is the same day Chile gets its first round of blackouts. Oh, it’s critical ’til June, too.

Which is all well and good, but unless you live in Chile you need a decent reason to know all this, right? Well, there’s a trade or two staring us in the face here.

1) Play the copper supply squeeze that’s on the way (you can trade the metal futures, or perhaps a non-Chile exposed Cu producer like PCU would work well). This has the downside of running against the bearish grain of the broad markets right now, so maybe the next one is better.

2) ECH. This ticker is the iShares MSCI Chile Index, an ETF chock full of Mapuche exposure (23% in utilities for one thing). It’s a pretty new vehicle, having opened for business late last year. The chart here ….(gracias bigcharts.com, your charts rock)

…..shows that right here right now ECH is at a new high, and we think the energy crisis now made ‘official’ by an international ratings agency and explained by a Chilean energy bigwig in no uncertain terms makes our recommendation you’re about to read a pretty good trade for the next few weeks, especially when you factor in the drought in Chile that doesn’t just leave hydro reservoirs empty, but means the agro sector there is in bad shape, according to all sources.

Our reco on ECH? Short that sucker. Our reco for residents of Santiago? Buy candles.

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