Monday, March 1, 2010

Goldman on copper disruption

Copper impact likely to be limited, but power outages pose a risk
A massive 8.8 magnitude earthquake hit Chile early Saturday morning, February 27 striking 56 miles (90 km) northeast of the city of Concepcion. Chile is the world’s largest copper producer, producing about 5300 KMT, or 34% of global copper production of about 15,830 KMT in 2009. Most of the major producing copper mines are located in the north of the country, far from the quake which struck in central Chile. However, as of 9pm EST on Saturday February 27, 5 major copper mines had been disrupted owing to the quake, amounting to about 1100 KMT or 21% of Chilean copper production and nearly 7% of global copper production.

However,the closures were forced by electricity/energy supply outages with no structural damage reported. Thus, the duration of the disruptions will likely depend on the ability to repair the power supply. At this time, the electricity outages are expected to be short-lived, but the potential for extended power outages poses downside risk to production and upside risk to prices, especially as copper fundamentals have already begun to show signs of tightening. Any sustained supply disruption would hasten this tightening, reinforcing our constructive view on the metal.
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