Chile quake seen giving a boost to copper prices

SINGAPORE/CAIRO (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 on Sunday.

The earthquake, one of the world’s most powerful in a century, battered Chile, killing more than 300 people as it toppled buildings and triggered tsunami waves hitting Pacific coastlines as far as Japan and Russian far east.

The quake forced temporary suspension of up to a fifth of Chile’s mining capacity -- estimated at around 4.5 million tons of copper in concentrate annually -- after Codelco and Anglo American halted operations at four mines in total.

The government officials said exports would continue unhindered, but analysts expect prices will rise on Monday because of the possible disruption in infrastructure, power and transportation to the mines.

“While it appears that a modest proportion of production has been halted, the major impact may come from the disruption on deliveries from the mines and from the disruption of power supplies to the mines,” said Citi analyst David Thurtell.

“Transportation will be impacted by damage to highways and from a lack of fuel. The country’s main highway has been severed and bridges destroyed. Mine workers’ apartment buildings may have been destroyed,” Thurtell said.

State miner Codelco halted operations at its El Teniente and Andina mines -- which together had a combined annual output of 614,000 tons last year. Mining Minister Santiago Gonzalez said it could take two days for production to resume.

Other Codelco operations were unaffected.

Anglo-American’s Los Bronces and El Soldado mines, which together produce about 280,000 tons of copper annually, also halted operations, but other major mines were running as usual.

Most of Chile’s key mining industry is based in the north of the country. The quake struck in central Chile, 70 miles northeast of the city of Concepcion.

For a graphic showing the location of the earthquake, click:


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 epicenter 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 closed on Friday at $7,195 a ton, having rallied 2.8 percent on the day. Traders said prices could rally by a similar amount on Monday.

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.

“The government has said shipments will continue normally but people will try to stock up on metal -- the 30,000 tons that landed in Shanghai warehouses in the past two weeks will probably find eager buyers,” a dealer in Singapore said.

Copper stocks in warehouses monitored by the Shanghai Futures Exchange jumped 28 percent to almost 150,000 tons 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.

Copper prices surged 140 percent last year after a huge sell-off in 2008. As of Friday’s close, they are down around 2.4 percent so far this year.

Additional reporting by Alonso Soto in Santiago