Copper advances as Chile earthquake cuts power, halts mines

The copper price has jumped after a magnitude 8.8 earthquake halted many mines in Chile, cutting supplies from the world’s largest producer.

The May-delivery copper contract had gained over 6% in early Monday trading in Asia (reaching US$3.49/lb, US$7,685/t) before slipping back slightly to US$3.47/lb at 10am in Sydney (based on after-hours electronic trading on the Comex division of the New York Mercantile Exchange). That was the largest intra-day gain for the most-active copper futures excahnge since last April.

Santiago-based Codelco, the world’s biggest copper producer, is restarting operations at its El Teniente mine after output was halted by the quake, which also closed its Andina mine. The two projects produce about 600,000t of copper.

London-based Anglo American plc said on Sunday, February 28, that power had been "partially restored" to its Los Bronces and El Soldado mines in Chile, which produce a combined 280,000t. The two mines stopped output on February 27.

"We could see prices surge for the next four to six weeks," Pete Sorrentino, who helps oversee US$13.8 billion at Huntington Asset Advisors in Cincinnati. "This is the kind of thing that feeds on itself. Until we know the full extent of the damage to the mines and the power grid, people will be concerned."

The three-month copper contract that closed at US$7,195/t on the London Metal Exchange last week, may climb 8-11% to US$7,800-8,000/t, according to David Threlkeld, president of Arizona-based trader Resolved Inc. Edward Meir, an analyst at MF Global Ltd, suggested that prices may gain US$200-500/t. Copper last rose more than 11% on October 29, 2008, as China, the biggest consumer, cut interest rates to spur growth.

The four mines in Chile account for 16% of the country’s output. Chile makes up 36% of global exports of copper ores and concentrate, according to the International Copper Study Group.

"It is a meaningful tonnage," said Fred Demler, head of global metals trading at MF Global, a trading company on the LME floor.

The Teniente, Andina, Bronces and Soldado mines were closed because of power outages, the two companies said. A rockfall also caused damage to a slurry duct at the Andina mine, Codelco said.

Codelco said the quake didn’t cause any significant damage to installations at El Teniente. Power to the two Anglo American mines was "partially restored," spokesman Pranill Ramchander said in e-mailed comments.

Chile’s earthquake also severed the country’s main highway, and destroyed bridges and apartment buildings.

The central Chilean ports of San Antonio and Valparaiso remain closed after the earthquake, TVN reported.

Expanding copper inventories provide a cushion for supply disruptions, said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt.

"The exchange stocks worldwide are still very high and the market was in oversupply before the earthquake," he said. Mr Weinberg added that prices may still rise US$200/t as traders switch focus from demand to supply risks.

The quake was centered 320km southwest of Santiago, near the main winemaking region and close to Concepcion, a metropolitan region of more 500,000 people. More than 700 people are already reported to have been killed.

Bloomberg (March 1, 2009)