Power Outages in Chile Threaten Copper Production, Could Raise Prices

Chile is the world's largest copper miner, and this week, analysts are continuing to warn of diminished copper production and higher prices after the massive earthquake that struck the region on February 27.

At first, worries centered on the direct impact the disaster had on the mines themselves. Fortunately, though, the damage was not as extensive as originally feared.

Now, power outages are the big concern. According to Reuters, nine world-class copper mines in south-central Chile had to lower production on Sunday evening after a blackout left most of the country in the dark.

These mines produce about 28 percent of Chile's total copper output (estimated at more than 1.5 million tonnes annually).

Reuters published this list of the south-central Chile mines that are susceptible to more blackouts:

Mine, Operator, Output (in tonnes per year)

El Teniente, Codelco, 404,000
Andina, Codelco, 210,000
Salvador, Codelco, 65,000
Los Bronces, Anglo American, 238,423
El Soldado, Anglo American, 41,365
Mantoverde, Anglo American, 61,515
Los Pelambres, Antofagasta Minerals, 312,000
Candelaria, Freeport-McMoRan, 185,000

(Total: 1,517,303)

The blackout on Sunday was caused when Chile's main power grid, called the Sistema Interconectado Central, was affected by a disruption at Charrua, the system's biggest substation, 431 kilometers south of Santiago.

Conservative President Sebastian Pinera, who took office last week, said on Monday that it would cost at least $30bn (nearly 20% of Chilean GDP) to rebuild the country, and that the power grid would remind "unstable" for seven days.

If your business depends on copper, I hope your risk alert system moved these concerns to page one of the procurement agenda. Have you been in touch with your copper supplier to discuss current market conditions and possible volatility? Even though the bulk of Chile's copper mines are in the northern part of the country and are powered by a separate grid that was not damaged by the quake, it's clear that at about one-quarter of the country's production is going to remain somewhat unpredictable, at least for the next few weeks.