The Chilean 8.8, three-minute long earthquake disrupts Chile’s copper supplies and this may lead to an increase in the price of copper. A report states:
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.
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.
It seems almost immoral to seek to profit from the earthquake while we express sympathy with those who died, whose homes were damaged, and with a country that will now have to reconstruct.
Yet we grow almost tired of reports of damage from earthquakes and yet more pictures of cars crushed and inadequately constructed buildings collapsed. I was in Guatemala City last week when a 5.5 struck the city. The seventh floor of the hotel where I was just awakening swayed and shook. I am told the epicenter was closer to the Marlin Mine which I had just left, and we are looking at the information from monitors on the abutment of the tailings impoundment to see what forces shook the embankment and by extension the ridges that surround the mine and on which there are houses of adobe and concrete block.
Comparison of the damage in Chile, Haiti, Los Angeles, and San Francisco persuade us that people in earthquake prone regions just have to build to higher standards. I was in the Loma Prieta quake and spent two days in San Francisco before finding a flight home. I saw the brick veneer peel off buildings crushing the homeless sitting innocently on the sidewalk. I saw the twisted old buildings and the sidewalks heaved up. But all in all few died and the city recovered quickly. I was in Pasadena the morning of the Northridge earthquake. The fridge slid across the kitchen and ruptured the water mains flooding the apartments below. Years later I inspected some 400 houses, part of a 1,600 house reinspection program to ascertain the liability of an insurance company to pay for earthquake-induced damage. In about half the cases we determined the house owners were simply mistaken about damage–they claimed that pre-existing damage and decay was the result of the earthquake. In about half the cases, simple inexperience had lead to adjusters denying payment when, in our opinion, the earthquake had caused damage. The point is that most houses we looked at were not particularly well designed or built to resist the normal forces of soil movement, slope creep, or the ravages of time. Add an earthquake to these inherent defects, and you get cracking, collapsed houses, and death. And a great deal of self delusion about what the house looked like before the damage.
I recognize that 8.8 is a large earthquake and one that causes considerable damage. But it is not beyond expectation or prediction. Of course some bridges will fall. There will always be unattended houses with soft stories that collapse and crush the cars. There will be homeless. Mines will be affected; although in this case it appears the Chilean mines were less affected than we might fear. At least that is the preliminary conclusion. We will have to await detailed reports to confirm this. For example, were buildings on and adjacent to the mine affected; did the slopes of the open pits stand up; are the tailings embankments uncracked; were there underground rock bursts; are the roads in and out of the mine traffickable?
Meanwhile, read all you can and consider your investment strategy and if you make money donate generously to the relief effort. Here is one link that is insightful and here is a summary of what they say:
The 8.8 magnitude which decimated Chile on Saturday morning knocked out 27% of the world’s copper supply. Of the 19.7 million tons of the red metal produced globally in 2009, Chile accounted for 5.3 million tons. The earthquake was the fifth most powerful in history, and was the same magnitude that flattened San Francisco in 1906. While the epicenter is several hundred miles away from the main copper mining regions, Chile’s infrastructure has sustained major damage. There is no way to get the ore to smelters, or ingots to the market. Mines can’t operate without fuel or electric power. Roads, rail lines, bridges, and ports have been damaged. Banks can’t carry out trade finance without communications . If you haven’t unloaded your copper yet, this is an ideal chance to do so. If the markets really get the bit between their teeth and make it as high as $4.00/pound there could even be a shorting opportunity in copper setting up. With the global economy coming off of last year’s sugar high, base metals are looking to go sideways at best in the near future, and possibly down.
You can also expect Chile’s stock market to get slammed when it reopens, whenever that is. If we get a major sell off, it could create a great buying opportunity for one of the few countries in Latin America that is doing everything right. I’ll be doing more research on this in the near future.
Here is another take that is bold enough to predict the price changes:
Jonathan Barratt, managing director of Commodity Broking Services, said: “People will start to build in a risk premium early on Monday. That will remain for as long as uncertainty exists and things like assessing the impact on fuel supplies and so on will take some time.” On Friday, the main three-month copper contract closed at $7,195 a tonne. One Singapore trader was quoted saying the price could rise to $7,400.
As we end writing this piece, the radio reports a greater number of deaths, tsunamis washing people out to sea, greater damage than the web reports, and more aftershocks. The mines will be affected; be sure of that; and so will the price of copper. Let us hope this does not further affect a fragile world economy. Meanwhile send some cash to Haiti and Chile. But better still, send the engineers to make sure structures are rebuilt properly in those countries and elsewhere where earthquakes could and will occur.