For 2017, it predicted an average copper price of $2.77 per pound, markedly higher than its previous estimate of $2.64.

Cochilco also forecasted Chile's copper output to fall 4 percent from 2016, to 5.27 million tonnes, due primarily to a 43-day strike at BHP Billiton Ltd's Escondida mine in Chile, the largest copper mine in the world, earlier this year.

In 2018, however, with Escondida operating at full capacity, the state commission predicted output will rise 7.8 percent, to 5.74 million tonnes.

Cochilco Vice President Sergio Hernandez attributed higher near-term copper prices to a surge in Chinese demand, a result of higher-than-predicted growth of 6.9 percent in the first quarter of 2017, but warned there were signs that growth was unsustainable.

"There is a high degree of consensus that this trajectory of growth is unsustainable in the medium term … which could lead to adjustments in the future," Hernandez said at a news conference.

China is by far the most important market for Chilean copper. Fluctuations in demand there, particularly in copper-intensive areas such as real estate, have a strong impact on the Chilean economy, where copper-related activity can account for up to 15 percent of gross domestic product.

For every one cent increase in the average annual price of copper, Chilean exports grow nearly $125 million and tax revenues increase by $60 million, according to official estimates.