us copper futures surge on chilean quakes

http://www.reuters.com/article/marketsNews/idLTAN1453757720071114?rpc=44&sp=true

US copper futures surge on back of Chilean quakes
Wed Nov 14, 2007 3:06pm EST

NEW YORK, Nov 14 (Reuters) - U.S. copper futures settled sharply higher Wednesday after two powerful earthquakes rocked the mineral-rich northern region of Chile, the world's biggest producer of the red metal, analysts said.

"This comes on top of a very tight supply/demand situation," said Robbert Van Batenburg, Head of Research, with Louis Capital Markets in New York. "Any disruption like this, especially when we're not sure when production will come back up, will definitely have a major impact, especially also because Chile is responsible for such a large part of total copper output."

Copper for December delivery (HGZ7: Quote, Profile, Research) ended up 18.95 cents, or 6.1 percent, to $3.2965 a lb on the New York Mercantile Exchange's COMEX division, its single largest daily percentage gain since July 6, 2006. Trading ranged from $3.1080 to a one-week high of $3.3070.

Copper, a metal with extreme sensitivity to supply disruptions, jumped in midmorning trade after news broke by 10:40 a.m. EST (1540 GMT) that a 7.7 magnitude earthquake hit northern Chile, near the village of Antofagasta, injuring at least 20 people, damaging buildings and halting operations at some of the world's largest copper mines. Just two hours later, a second quake of 5.7 magnitude struck.

By 1:00 p.m. EST, futures volumes were estimated at 19,185 lots, versus Tuesday's final count of 26,155 lots.

Open interest in COMEX copper futures declined by 1,286 lots to 78,465 contracts as of Nov. 13.

"An type of supply scare increases volatility, and that kind of volatility should be expected because people get nervous when external events happen that could possibly adversely affect an already tight supply/demand relationship, and that's what exactly what occurred today," said Adam Sarhan, founder of GlobalMacroResearch.com in New York.

BHP Billiton (BHP.AX: Quote, Profile, Research) (BLT.L: Quote, Profile, Research) said work was paralyzed after power was cut off at its Escondida, Spence and Cerro Colorado copper mines.

Freeport-McMoRan Copper & Gold (FCX.N: Quote, Profile, Research) said operations were halted then resumed at its Candelaria mine in Chile, due to power outages, but its El Abra mine was still down without power.

Chilean state copper miner Codelco said it resumed operations at its largest division, Codelco Norte, two hours after the quake left it temporarily without power.

Big mines in the south of Peru, also a major global metals producer, said operations were not impacted.

Chile provides more than a third of the world's annual supply of copper.

"It could have some upward pressure on copper prices for the foreseeable future, especially because we are in the fourth quarter and production is very high, especially in China, so any disruption like this will probably have some sort of ripple effect," said Van Batenburg, referring to a surge of 18.1 percent in Chinese retail sales in October.

"China, where a lot of the additional demand growth is coming from, is once more reminding the market that it continues to be very strong," he added.

Supply-side fundamentals showed copper inventories in London Metal Exchange (LME) warehouses add another 775 tonnes on Wednesday, leaving total stock levels at 177,875 tonnes -- up nearly 80 percent since July and almost 40 percent since early October.

COMEX copper inventories held steady at 18,948 tons on Tuesday.

In London, copper for delivery in three months (MCU3: Quote, Profile, Research) closed 3 percent higher to $7,135 a tonne from Tuesday's settlement. (Reporting by Chris Kelly; Editing by Marguerita Choy)