EconMatters - August 7, 2011 By Frank Holmes The opinion expressed in this article does not necessarily reflect the opinion of TVIPacific. It is meant for information purposes only for our readers. This is thepersonal opinion of the author only. A flurry of weakeconomic news lately is weighing heavily on copper’s price. Recently, the redmetal dipped to its lowest since July 25 after a release of weak globalmanufacturing numbers and concern over global growth.
But demand is only part of the equation for themetal widely used in manufacturing and construction. Macquarie Research sayscurrent copper supply shortages are a main reason we could see higher copperprices in the near future.
Like gold, oil and other commodities, copper minesupply growth has made little headway recently. Since 2004, only around 1.45million tons of new supply have been brought online. 
This is the same old story for copper production. In 2001, the top 50 probable copper mine projects totaled more than 7 million tons of new production. By 2007, only 1.3 million tons—less than 20 percent—were either operational or under construction, data from Merrill Lynch and Xstrata shows. With weather delays, poor deposit grades, worker strikes and mill problems, Macquarie forecasted at the start of 2011 that roughly 700,000 tons of copper mine production could be lost to disruptions. Only halfway through 2011, more than 75 percent of that allotment is already accounted for. Much of the supply disruption has come from Chile, the world’s largest copper producer. Weather reports out of South America indicate that Chile is experiencing the “wettest winter in decades for Chile’s arid northern desert.” In July, a single stretch of storms dropped four year’s worth of rain on the historically dry Antofagasta region, according to the Associated Press. This especially harsh winter has forced more than 12 copper mines to slow or halt operations. Furthermore, a prolonged strike at Chile’s Escondido mine continues to affect copper supply. Workers at the mine have been striking for nearly two weeks, seeking higher wages and an $11,000 annual bonus. The mine accounts for 7 percent of the world’s annual copper output. It’s estimated the closure has eliminated nearly 36,000 tons of copper from the global marketplace, says the Dow Jones Newswires. Reuters reported progress has been made in labor discussions, raising expectations that workers will soon head back to work. Macquarie says 2 percent year-over-year supply growth in 2011 is “optimistic.” We believe delays and disappointments for copper production increases will continue to constrain supply. This could keep copper prices at relatively high levels despite a weaker-than-expected global economy.
About The Author - Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. EconMatters
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