Copper price falls as Chile brings 1.6mt back on line
Some 1.6 million tonnes of copper capacity is being restarted in Chile following torrential rains in the north of country which halted production at a number of the country's largest operations.
The price of copper in New York fell on the news with May futures trading on the Comex market giving up 1.8% to $2.756 a pound. Copper is down 7.6% compared to a year ago, but up sharply from five-and-half-year lows struck in January.
Chile is responsible for a third of the world's mined output of copper with many of the largest mines located in the Atacama desert. Before the unusual weather this week, a drought was reducing production as a result of water restrictions imposed by the authorities. In April 2014 a major earthquake also temporarily halted output at a number of large mines.
State-owned giant Codelco confirmed it had restarted mining operations at its Chuquicamata, Ministro Hales, Radomiro Tomic, Gabriela Mistral, and Salvador mines after a three-day hiatus due to the state of access roads, power problems and safety concerns following the downpours.
Codelco was forecast to produce 1.6 million tonnes of copper this year – already down 5% from 2014 – and the affected mines represented some 60% of the Santiago-based company's production capacity.
Other mines suspended after the rains included Antofagasta's Michilla mine and Centinela copper complex (its largest operation Los Pelambres wasn't affected), Anglo American's Mantoverde and Mantos Blancos, Lundin Mining's recently acquired Candelaria and Barrick Gold's Zaldivar.
BHP Billiton, operator of the world's largest copper mine Escondida, said mining was not affected while Chile's number two operation Collahuasi, owned by Anglo and Glencore also operated throughout the period. Anglo's Los Bronces also operated normally and earlier Chile's mining ministry said small and medium-sized mines in the region had not experienced significant damage.
Most analysts expect copper to move into a surplus this year in excess of 200,000 tonnes after a largely balanced 2014, but the copper industry has a long history of supply disruptions.
Typical disruptions associated with adverse weather, technical problems, power shortages or labour activity make forecasting a tough proposition. To these variables add more recent factors affecting future supply which includes the weak price which makes it difficult for miners to raise development finance (or raise wages for that matter).
That leads to project deferrals, commissioning delays and changes to mine plans and partly explains why the International Copper Study Group's benchmark forecast for 2014 swung from a 400,000 tonne surplus in April to a 300,000 tonne shortage just six months later. The ICSG predicts a surplus of more than 390,000 tonnes this year, a forecast made in October which is likely to be significantly altered.
The disruptions due to the floods are not expected to have a major impact on the market this year.
"This is a logistical bottleneck as opposed to a major calamitous event like a landslide or an earthquake," Edward Meir at broker INTL FCStone in New York told Reuters on Wednesday.