Copper prices surged Monday as traders tried to gauge the extent of disruption to output from Saturday’s earthquake in Chile, the world’s top copper producer. Three month copper erased last week’s losses, rocketing 3.7% higher to end second ring trade on the LME at $7.360 per tonne on Monday vs. Friday’s close at $7,096 per tonne. In New York May delivery copper settled at $3.35/lb up 2% from $3.284/lb on Friday, after earlier hitting highs of $3.487/lb.

It was your typical reaction to a catastrophic event. The 8.8 magnitude earthquake, which saw miners across central Chile and neighboring provinces temporarily shut operations and evacuate workers, closed some 1 million tonnes of copper production Saturday. Chile’s largest copper mines are located in the northern regions and were unaffected by the quake. But while the quake’s impact on Chilean mine output could be limited other market participants warned it might have far reaching consequences for the global copper concentrates market.

One third of global concentrate production would be out of Chile, and while not all of that is going to be disrupted there is potential that smelters in Japan, China and India that have term contracts may be notified that they may receive lower tonnages in the weeks or months to come. Production could also be impacted further due to problems with Chile’s power supply. Over the coming days, power may have to be rationed to provide it to the rest of the country. There could also be delayed consequences for more remote copper mines that draw their electricity from diesel operated power plants, which might face fuel shortages because many of the country’s oil refineries have been shuttered by the quake

Excerpts from American Metal Market. March 1st, 2010