An accident at Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine is drawing comparisons with a 2003 landslide at the same Indonesian operation that helped trigger an unprecedented five-year surge in copper prices.
The CHART OF THE DAY shows copper gaining 3.2 percent since a May 14 tunnel collapse at Grasberg, where annual output this year was forecast at about 500,000 metric tons, or about 3 percent of available global supply from mines. Operations will remain suspended until a probe of the accident that killed 28 people is concluded, the government said May 21.
A decade ago, a landslide at the same open pit in the province of Papua killed eight and cut output, marking the beginning of a multi-year rally that led to a quadrupling of copper prices. The latest accident will reduce an expected surplus of available copper in global markets this year, Andrew Michelmore, chief executive officer of MMG Ltd., the listed unit of China’s biggest state-owned metals trader, said May 22.
“The uncertainty is causing short covering and with positioning having been pretty short the rally could have some legs,” Gayle Berry, an analyst at Barclays Plc in London, said in an e-mailed response to questions.
While the 2003 event occurred when global inventories were about 20 percent lower and the duration of the current stoppage probably will be shorter, it comes as the company enters wage negotiations, potentially further disrupting output, Berry said. The mine’s workforce went on strike for three months in 2011 to seek pay closer to their counterparts at BHP Billiton Ltd.’s Escondida copper mine in Chile, the world’s largest.
Freeport-McMoRan, whose local unit declared a day of mourning, said in a May 21 e-mailed statement that the accident took place outside the area of mining operations and that the complex was suspended out of respect for the deceased.