copper outlook

Why Chilean Drought Means Surging Copper Prices
Tuesday, 22 April 2008 - Melbourne Australia

By Al Robinson


Why Chilean Drought Means Surging Copper Prices
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Why Chilean Drought Means Surging Copper Prices

It's simple. Two out of every five tonnes of copper come from Chile. In Chile's banner mining district, as much as 75% of the country's power comes from hydroelectricity. When that water stops running…40% of the world's copper production is suddenly at risk.

Copper prices have added around 30% since January 1st. China's responsible for most of that. In a flurry of importing, China has driven international copper prices to US$4 per pound.



But on the supply side, things are looking grim. Chile's feeling the heat. It's in its worst drought ever, as a result El Nino phenomenon. The Chilean river system usually gushes forth with awesome force. Awesome force equals energy generation, in today's world of expensive fossil fuels.

To a Chilean miner, the scene below says "cheap electricity".



But as the water evaporates, so does copper production.

This energy shortage is coinciding with mining strikes in the copper capital. State-owned Codelco has closed down three mines, courtesy of new demands from contractors. Apparently the working class got wind of the fact that their labour is worth millions to mining corporations. The uprising begins.

Last year, a month and a half of striking cost Codelco big. US$100 million, to be precise.

So what do you get when you mix huge importing demand…energy crisis…and unruly mobs? We'd be willing to wager a tight copper market. The longer this lasts, the more ambitious copper prices will get…and the more ambitious copper traders will become.
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