Despite Chile’s massive 8.8-magnitude earthquake on Saturday, copper markets will likely face only temporary price hikes in the worst-case scenario. However, Saturday’s disaster serves as a reminder that supply risk, in the form of supply disruption remains alive and well for many metal markets. Speaking about Chilean copper output, according to Citi analyst David Thurtell, “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.”
Codelco’s El Teniente mine (which accounts for 7% of Chile’s output) according to the Reuters article, did not face any damage but its Andina mine saw power disruptions as well as a 5-ton boulder “damage installations but the mine likely reopened as of this writing. With Chile accounting for about 35% of the world’s copper production, any significant impact on any one of the nation’s largest mining companies could send prices up in the short term. Ironically, the mines appear in good shape but the power supply and roads (and even access to key ports) represent the biggest challenges.
According to the Reuters story, “the central copper-exporting port of San Antonio had been shut down on Saturday, but the major northern ports of Antofagasta and Mejillones were unaffected. We expect copper prices will increase in the short term until the power situation gets resolved. And one lesson we have all learned over the past few years – slight changes to global demand and/or supply often send markets moving quickly and drastically. Buying organizations can consider themselves lucky this time around – watch the copper price over the next couple of weeks to see how the market responds to this perceived threat of loss of supply.
Readers can gain additional insight into copper market price dynamics via MetalMiner’s Copper Price Perspectives.