Chile quake seen lifting copper prices
Singapore, February 28, 2010
Copper prices are expected to rise when trading gets under way on Monday, lifted by supply uncertainty in the wake of the deadly 8.8 magnitude earthquake in Chile, traders and analysts said Sunday.
The earthquake, one of the world's most powerful in a century, battered Chile, the world's biggest copper miner, killing more than 300 people as it toppled buildings and triggered tsunamis that ravaged a port town and prompted tsunami warnings around the Pacific basin.
The quake forced the suspension of up to a fifth of Chile's mine capacity - estimated at around 4.5 million tonnes of copper in concentrate annually - and even though government officials said exports would continue unhindered, market watchers said prices would rise when trading started on Monday.
'Copper's sensitivity to Chile is analogous to oil's sensitivity to tensions in the Middle East. Copper is already a tightening market and this could accentuate that story,' ANZ's senior commodity analyst Mark Pervan said.
'And even if the mines themselves haven't been directly affected, there is a whole lot of infrastructure running through the whole thing - roads, rail and hydropower that could have been damaged.'
State miner Codelco halted operations at its El Teniente and Andina mines, and Mining Minister Santiago Gonzalez said it could take two days for production to resume. He also said production at the Caletones smelter had halted.
Other Codelco operations were unaffected.
Gonzalez added Codelco had enough stocks to be able to meet its export commitments, and a union leader said the key copper ports of Antofagasta and Mejillones were operating normally, although the smaller copper port of San Antonio was closed.
Anglo-American's Los Bronces and El Soldado mines, which together produce about 280,000 tonnes of copper annually, also halted operations, but other major mines were running as usual.
'The situation is still in flux and I don't want to call the market 24 hours before it opens. but there is a great deal of uncertainty about the conditions in Chile, and that typically results in higher prices,' a dealer in Singapore said.
'The government has said shipments will continue normally but people will try to stock up on metal - the 30,000 tonnes that landed in Shanghai warehouses in the past two weeks will probably find eager buyers - and we may also see some tightening in London Metal Exchange spreads.'
The benchmark LME three-month copper contract closed on Friday at $7,195 a tonne, having rallied 2.8 per cent on the day. Traders said prices could rally by a similar amount on Monday.
'(This) means copper up to $7,400 Monday,' another Singapore trader said.
Copper stocks in warehouses monitored by the Shanghai Futures Exchange jumped 28 per cent to almost 150,000 tonnes in the past two weeks and had looked like a potential drag on the market, but following the quake, Chinese merchants and consumers were likely to pick up the metal to ensure supply.
'The kneejerk will be to cover. The Chinese are starting to get into full swing after the holidays,' Jonathan Barratt, managing director of Commodity Broking Services, said.
'We have seen a steep correction in the past two weeks, but the market closed well bid and people will start to build in a risk premium early on Monday. That will remain for as long uncertainty exists and things like assessing the impact on fuel supplies and so on will take some time.'
Copper prices surged 140 per cent last year after a huge sell-off in 2008, but are down around 36 per cent so far this year.
Many of the more distant mines rely on diesel to power generators to provide electricity and disruption to supply - either due to problems at the nation's oil refineries, near the epicentre of the quake, or because the fuel is diverted to help with the relief effort - could have implications for output.
State oil company ENAP said diesel imports were being stepped up to ensure there were no shortages.
ENAP general manager Rodrigo Azocar said the refineries had energy supply problems and structural damage that 'had together forced production to be paralysed'.
He added that the company had sufficient gasoline stocks to last for two weeks and enough diesel for 10 days.-Reuters