Copper hits five-week high on supply fears

Concerns around supply in top producer Chile, devastated by an 8.8 earthquake boosted prices of the metal.

MANILA (Reuters)  - 

Copper futures jumped to their highest in more than five weeks on Monday after a massive earthquake in top producer Chile sparked supply worries and lingering threats could push the metal to a new 2010 peak.

Saturday's 8.8-magnitude quake and the ensuing tsunamis killed more than 700 people in Chile, wrecked hundreds of thousands of homes, mangled highways and bridges and dealt a heavy blow to one of Latin America's most stable economies.

Up to a fifth of Chile's copper mine capacity was initially shut -- estimated at around 4.5 million tonnes in concentrate annually -- but the top mines slowly resumed operations on Sunday despite limited power supplies.

"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.

Many of the more distant mines rely on diesel to power generators to provide electricity and disruption to supply -- either due to problems at the nations' oil refineries, near the epicentre of the quake, or because the fuel is diverted to help with the relief effort -- could have implications for output.

Bonnie Liu, analyst at Macquarie in Shanghai, estimates LME copper could go up to $8,000 a tonne in the short term if the supply uncertainty persists.

"We don't know how much production will be affected. It's too early to make any adjustment, but definitely this is going to create some short-term panic in the industry which means the price could remain at a very high level," Liu said.

Three-month copper on the London Metal Exchange CMCU3 rose $271 to $7,466 a tonne by 0701 GMT, after peaking at $7,600, its highest since Jan. 20.

Shanghai's benchmark third month copper SCFc3 rose 4.5 percent to 60,630 yuan ($8,882) a tonne at the close, after surging by its 5 percent daily limit earlier.

BULLISH MOOD

The big jump in prices has likely tipped technical signals for copper back into bullish mood, traders said, which may see LME metal topping the 2010 high of $7,796 touched on Jan. 7.

 Prices came off early peaks as market players hoped the quake would not adversely impact Chile's copper output, traders said, paying little attention to Chinese data showing the pace of manufacturing in the world's third-largest economy eased in February.

 "We saw an early rush to cover, but things have cooled a little. Nonetheless we are having a very, very busy day. The quake injected a lot of uncertainty into this market, even if the damage to mines is superficial," a dealer in Melbourne said.

 "We may see another round of buying as Europe rolls in, but don't be surprised if we give up a lot of this in fairly short order."

 Over 5,000 lots of copper traded on the LME, more than double the typical volume during Asian trading hours.  Chile's mining minister Santiago Gonzales said Codelco had enough stocks to be able to meet its export commitments, and a union leader said the key copper ports of Antofagasta and Mejillones were operating normally, although the smaller copper port of San Antonio was closed.

"While it appears copper production in Chile will not be greatly affected by the earthquake, these disruptions add to a chronic underperforming supply-side in the copper mining industry," Standard Bank said in a note.

"An underperforming supply-side, particularly from the mining industry, is a key pillar of our bullish medium to long term outlook on copper. This earthquake will only reinforce our view."

(Additional reporting by Nick Trevethan in SINGAPORE and

Humeyra Pamuk in CAIRO; Editing by ) 

© Thomson Reuters 2010 All rights reserved

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