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Massive Earthquake in Chile Sent Shockwaves Through Global Copper Market

By Jim Williams

An already nervous copper market was put on alert last week after an 8.2 magnitude earthquake rocked the copper-rich Atacama Desert in Chile. Copper prices rose to their highest level in more than three weeks on Wednesday on concerns that supplies could be affected. Fast forward to this week and it looks like the earthquake did little to move the needle when it came to copper.

As tremors continue to shake northern mines and clean up continues this week, the metal opened down 0.7 percent in London since mines and ports only temporarily halted some operations after the April 1 quake.

“The earthquake didn’t affect anything, but it did make the market, which was nervous and short, spike up a bit,” says Michael Turek, Senior Director and Head of Metals Desk at Newedge. “So far, none of the facilities have been adversely impacted, but you are always concerned about aftershocks.”

Turek went on to say last week’s uptrend was not because of the quake, but “entirely due to the potential fall production disruption out of Chile.”

Fall production, China’s waning demand growth and expansion are expected to be topics of discussion at this week’s Center for Copper and Mining Studies (CESCO) Week in Santiago, Chile. CESCO Week is the world copper summit where the most important leaders of the world mining industry gather to discuss important topics, challenges and opportunities. Thomas Keller, chief executive officer of Chile’s state-owned Codelco; Hennie Faul, head of copper at London-based Anglo American; and Antofagasta CEO Diego Hernandez are among featured speakers at CESCO 2014.

One topic on the agenda will surely be the news of three new mines opening this year in Chile. That is more than in the past decade. According to a Bloomberg Businessweek report, the new mines are expected to increase global production by 4.7 percent in 2014 and 7.3 percent next year. That compares with an estimated 3.2 percent demand growth and 3.6 percent in 2015. The International Copper Study Group out of Lisbon, an intergovernmental organization of nations involved in the copper business, predicts a refined metal surplus of about 405,000 tons this year, excluding changes in unreported stocks, the biggest since 2001.

Prices reached the lowest level since 2010 last month amid concern about slumping demand in China and a release of metal held as finance collateral. China’s efforts to stimulate growth and how that will affect the market balance will also be a key talking point at this week’s CESCO dinner. Government data shows Chinese exports slid in February by the most since 2009.

Newedge’s Turek chimed in on the topic. “China can have their cake and eat it too because they are a centralized economic authority,” Turek states. “I think they will stimulate their economy – others disagree with me – but stimulate means they will maintain their stated growth rate of 7¼ – 7½ per cent while perhaps elevating themselves from the very serious structural debt crisis that they have.”

We will keep our ear to the ground at this week’s CESO 2014 summit and report any newsworthy discussions in our next post.

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