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Would Supply Disruptions Lend Support to Copper Prices in 2H15?

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Aug. 14 2015, Updated 8:06 a.m. ET

Supply disruptions

Previously, we noted that copper prices are testing their six-year lows. Copper miners such as Freeport-McMoRan (FCX) and BHP Billiton (BHP) are now rethinking their business plans to tackle the low commodity price scenario. Recently, BHP has announced job cuts in its Olympic Dam copper mine in Australia (EWA). Freeport might also look at curtailing some of its high-cost mines. Other copper miners could follow suit.

In the aluminum industry, producers including Alcoa (AA) have been shutting down high-cost smelters in a bid to improve their competitive positioning as well as restore the supply balance in the markets.

In this part, we’ll look at some of the other factors that could reduce the copper supply in the near term.

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Torrential rains in Chile

Chile, the world’s largest copper miner, has been rattled by heavy rainfall for the second time in 2015. Operations at some of the key Chilean (ECH) copper mines were halted due to the heavy downpours. Supply side disruptions could offer some support to copper prices in the second half of 2015.

Earlier this year, there were supply-side disruptions, including incessant rains and floods in Chile. Chile’s copper production fell between February and April this year due to these weather disruptions, as seen in the chart above.

Supply side disruptions were a possible reason behind higher copper prices toward the beginning of 2015.

Power shortage in Zambia

There has been a disruption in copper supply coming from Zambia as well. The country is going through a severe power crisis that has negatively impacted copper production.

Lower copper supply could push more metal out of LME (London Metal Exchange) warehouses.

In the next part of this series, we’ll analyze how LME copper inventories are shaping up.

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