Posted on Tue, May. 6, 2008
Chile's worst drought in five decades and power rationing in nations such as South Africa and China mean the price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world's biggest metals 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 two million people for an entire year.
Runaway growth in emerging markets that is squeezing world oil supplies has led to electricity shortages, cutting output of commodities.
Two signs of the effect: Platinum jumped to a record in January after mines in South Africa closed for five days as utilities rationed power, and cobalt is up 58 percent in the last 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, global head of commodities research at Deutsche Bank AG, who is based in London.
Metals are headed for a seventh straight year of price increases even as the worst U.S. housing slump reduced consumption in the world's biggest economy.
Through last week, platinum had risen 24 percent this year to $1,899.50 an ounce in London trading, while aluminum had gained 21 percent to $2,920 a metric ton on the London Metal Exchange. Copper climbed 26 percent to $8,410 a ton on the LME.
Some examples of the production problems:
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 future output.
Rio Tinto Group, the second-biggest producer of aluminum, cut production at its New Zealand smelter 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.
Congo, the world's largest source of cobalt for batteries and jet engines, asked mining companies Friday to cut electricity use after power-transmission cables were stolen.
Credit Suisse Group, Switzerland's second-biggest bank by assets, raised its 2008 cobalt price forecast 50 percent to $45 a pound March 26 because of Congo's electricity shortages. The price was at $48.50 Friday, 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. But accelerating demand will tighten the nation's power supply again within two years, according to Citigroup Inc., which estimates that 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.
"There just hasn't been enough planning to accommodate the growth of Asia's economies," said Francisco Blanch, head of commodities research at Merrill Lynch & Co. Inc. "We need to go back to the drawing board and boost investments in power infrastructure. And if this doesn't happen, we're going to see even more brown- outs."
