March 1, 2010 / 12:47 AM / 9 years ago

METALS-Copper seen up; Chile quake highlights supply risks

   * 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]
 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)  

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