Metal prices surge as rationing cuts power at mines
Posted on Sunday, May 11, 2008
Chile’s worst drought in five decades and power rationing from South Africa to China mean the price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world’s biggest mines.
Those governments are being forced to choose whether to reduce power to their 1. 4 billion residents or curtail energy supplies to the world’s biggest copper, aluminum, platinum and gold factories. The energy used by China’s aluminum smelters each week could provide enough power for more than 2 million people for an entire year.
Runaway growth in emerging markets that’s squeezing world oil supplies has led to electricity shortages, cutting output of commodities needed for ever-rising demand. Platinum jumped to a record in January after mines in South Africa closed for five days as utilities rationed power. Cobalt gained 58 percent in the past year as production growth in the Democratic Republic of Congo was limited by electricity supply.
“There will be a sustained level of risk from power shortages in the commodities markets,” said Michael Lewis, London-based global head of commodities research at Deutsche Bank AG. “We are pricing bigger supply losses as a result.” Metals are headed for a seventh straight year of price increases even as the U. S. housing slump reduced consumption in the world’s biggest economy.
In the first four months of 2008, platinum had risen 24 percent to almost $ 1, 900 an ounce in London trading, while aluminum had gained more than 20 percent to about $ 2, 900 a metric ton on the London Metal Exchange. Copper climbed more than 25 percent to about $ 8, 400 a ton in London.
Freeport-McMoRan Copper & Gold Inc., the world’s biggest publicly traded copper producer; Cia. Vale do Rio Doce, the largest in iron ore; and gold producer Newmont Mining Corp. all say power shortages threaten to reduce production.
Rio Tinto Group, the secondbiggest aluminum producer, cut output at its New Zealand smelter by 5 percent, or 1, 400 metric tons a month, on May 1 because of power constraints caused by drought. Anglo Platinum Ltd., the world’s biggest producer of that metal, said April 29 that first-quarter output plunged 24 percent to 428, 600 ounces because of cuts in the supply of electricity to its South African mines.
Smelting aluminum uses about four times as much power as for copper and more than twice that of zinc, according to Barclays Capital. About 80 percent of world aluminum-smelting capacity is in nations at risk of electricity shortages, according to Citigroup.
Congo, the world’s largest source of cobalt used in batteries and jet engines, asked mining companies May 2 to cut electricity use after power-transmission cables were stolen.
Credit Suisse Group, Switzerland’s second-biggest bank by assets, raised its 2008 cobalt forecast by 50 percent to $ 45 a pound on March 26 because of Congo’s electricity shortages. By early May the price was at $ 48. 50, according to Metal Bulletin data.
“Problems in South Africa and China with electrical capacity are not just bad luck, but result from a lack of investment,” said Kevin Norrish, commodity research director at Barclays. “Energy availability in the next 10 years is going to be a very important issue to the mining sector. We see these as structural changes, not cyclical changes.” China built $ 79 billion worth of generators and power lines last year, according to state officials. Accelerating demand will tighten the nation’s power supply again within two years, according to Citigroup, which estimates shortages there cut first-quarter copper output by 40, 000 tons, zinc by 125, 000 tons and aluminum by 600, 000 tons.
Chile, the world’s biggest copper producer, faces the risk of energy rationing after the worst drought in 50 years lowered hydropower reserves amid a shortage of natural gas for generators.
Copper may have further to increase. In inflation-adjusted terms, the price hasn’t yet reached a record, according to Barclays. In real terms, the metal is trading close to levels last seen a century ago, when the U. S. economy was expanding and the nation was being wired for electricity.
China, which is making a similar transformation, is building power stations and transmission lines that are exacerbating deficits in metals supply.
As much as 80 percent of China’s grid investment is spent on copper, said Yuan Genfa, secretary-general of the Shanghai Electric Wire & Cable Industry Association. Information for this article was provided by Carli Lourens and Xiaowei Li of Bloomberg News.
FEEDBACK:
Something to say about this topic? Submit a Letter to the Editor online
