* Analysts' disruption allowance likely to be exceeded
* Market to look at specific copper issues after Fed rate
rise
* Escondida expected to produce less in H2 than H1
By Pratima Desai
LONDON, Aug 6 (Reuters) - Power outages, strikes, floods and
drought as well as lower grade source material are tightening
copper supplies, potentially pushing the market into deficit
earlier than expected and laying the ground for price gains
later this year.
Estimates of how much copper output will be lost vary.
Morgan Stanley (NYSE:MS) puts the amount at about 500,000 tonnes so far
this year, while ICBC Standard Bank reckons an annualised 1.33
million tonnes.
Some of the news on supply problems has come over the last
couple of weeks, after a Reuters survey in July showed analysts
expected a 194,000-tonne surplus this year. COMMODITYPOLL01
In a 22-million-tonne market the numbers are not large, but
they are expected to rise as problems persist.
Analysts typically allow for output disruptions at about 4.5
percent, but given the outages already seen, the total in
December could be much higher, possibly more than 7 percent.
"Prices have fallen to the point where major miners are
looking at cutting production and future spending, that's in
addition to an abnormally large number of "typical" supply
disruptions," said ICBC Standard Bank analyst Leon Westgate.
"The copper market is already sowing the seeds for looming
deficits and the next big rally in prices, starting towards the
end of this year."
Benchmark copper CMCU3 on the London Metal Exchange hit a
six-year low at $5,142 this week on worries over demand from top
consumer China and a firm dollar, which makes dollar-denominated
commodities more expensive for non-U.S. currency holders.
Dollar strength has been fuelled by expectations of higher
U.S. interest rates, possibly as soon as September.
"China slowdown concerns seem to be primarily among U.S.-
and UK-based funds. Asian corporates appear to be amazingly
unconcerned," said David Wilson, analyst at Citi.
"Once there is clarity over U.S. rate rises, then the market
can start looking at specific copper related issues, which are
being ignored.
One of these is large output losses at Canada's First
Quantum FM.TO Kansanshi mine, smelter and its greenfield
Sentinel project in Zambia, running at reduced capacity due to a
drought and power cuts. ID:nL3N1082Y3 ID:nL5N10G2M6
Chilean miner Antofagasta ANTO.L produced 303,400 tonnes
of copper in the first half, down 12.9 percent from a year
earlier and below the consensus due to declining ore grades,
unfavourable weather and environmental protests. ID:nL5N10919B
Morgan Stanley estimates copper production at Glencore 's
GLEN.L Alumbrera mine at 60,000 tonnes this year from 103,000
tonnes last year.
The bank expects BHP Billiton's BLT.L BHP.AX Escondida
to produce 200,000 tonnes less in the second half of this year
from the first half and remaining low next year.
Other companies experiencing copper production losses
include Chile's Codelco CODEL.UL , due to floods and unrest and
Canada's Barrick-Gold ABX.TO , due to power shortages and rain.
Also on the horizon are contract revisions in August at
Southern Copper's Cuajone and Toquepala mines in Peru, according
Tristan Hobbs, consultant at CRU, which could provoke an
escalation of unrest.