METALS-Copper seen up; Chile quake highlights supply risks

Sun Feb 28, 2010 7:46pm EST

   * Risk premium seen lifting copper despite mine restarts
 * Disruption to power, transportation may still slow supply
 * Supports longer-term positive view, Standard Bank says
 (Adds analyst comments, details)
 By Nick Trevethan and Humeyra Pamuk
 SINGAPORE/CAIRO, March 1 (Reuters) - Copper is likely to
climb when trading starts on Monday, lifted by uncertainty over
supply after the world's top copper producer Chile was pounded
by a massive earthquake, analysts said over the weekend.
 The 8.8-magnitude quake, one of the world's most powerful
in a century, killed more than 700 people as it toppled
buildings, knocked down the country's infrastructure and
triggered tsunami waves hitting Pacific coastlines as far as
Japan and Russian far east. [ID:nN28187458]
 The actual impact on the copper production was seen limited
as major mines were mostly located up north and after mining
companies said they were resuming operations after work was
initially suspended. [ID:nN28210313]
 Nevertheless, analysts still expect prices to rise, because
of possible damage to infrastructure, as well as disruption in
power and transportation to the mines, which could potentially
slowdown the operations. [ID:nN28209603]
 "I expect that the copper market will react to the news
even though it is likely to have little material impact on
production," analyst Daniel Brebner at Deutsche Bank said on
Sunday.
 "Some infrastructure may be damaged... possibly some port
damage if the tsunami damages parts of the coast. So there may
be some safety work required given the magnitude of the quake
despite the distant nature of the event," he said.
 The quake had forced an initial suspension of up to a fifth
of Chile's copper mining capacity -- estimated at around 4.5
million tonnes in concentrate annually -- as Anglo American
(AAL.L) and state-owned Codelco halted output at four mines.
 Codelco [CODEL.UL] said it had restarted operations at its
El Teniente mine and that the Andina mine should also restart,
although sufficient power had not yet been restored late on
Sunday.
 A company official said the pace of output recovery at El
Teniente would depend on power supply.
 The mines produced 614,000 tonnes last year
 For a factbox on Chile copper mines, click on
[ID:nN28135112]
 DISRUPTION
 Production has resumed at the Anglo-American (AAL.L) Los
Bronces, a union leader told Reuters on Sunday.
 Eduardo Rocco, the union leader, said he did not know
whether the company's El Soldado mine had resumed operations.
 An Anglo-American spokesman in Chile could not be
immediately reached for comment.
 Most of Chile's key mining industry is based in the north
of the country. The quake struck in central Chile, 70 miles
(115 km) northeast of the city of Concepcion.
 For a graphic showing the location of the earthquake, see:
 here
 "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."
 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 nations' 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.
 The earthquake, which tore up highways and bridges, also
damaged two oil refineries run by state oil company ENAP, and
one official said diesel imports were being stepped up to
ensure there were no shortages.
 The benchmark LME three-month copper contract MCU3 closed
on Friday at $7,195 a tonne, having rallied 2.8 percent on the
day. Traders said prices could rally by a similar amount on
Monday.
 Chile's mining minister Santiago Gonzales said 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.
 "While it appears copper production in Chile will not be
greatly affected by the earthquake, these disruptions add to a
chronic underperforming supply-side in the copper mining
industry," Standard Bank said in a note,
 "An underperforming supply-side, particularly from the
mining industry, is a key pillar of our bullish medium to long
term outlook on copper. This earthquake will only reinforce our
view."
 (Additional reporting by Alonso Soto in Santiago; Editing by
Himani Sarkar)