| * Market to look at specific copper issues after Fed rate rise * Escondida expected to produce less in H2 than H1 By Pratima Desai LONDON, Aug 6 (Reuters) - Power outages, strikes, floods and drought as well as lower grade source material are tightening copper supplies, potentially pushing the market into deficit earlier than expected and laying the ground for price gains later this year. Estimates of how much copper output will be lost vary. Morgan Stanley puts the amount at about 500,000 tonnes so far this year, while ICBC Standard Bank reckons an annualised 1.33 million tonnes. Some of the news on supply problems has come over the last couple of weeks, after a Reuters survey in July showed analysts expected a 194,000-tonne surplus this year. In a 22-million-tonne market the numbers are not large, but they are expected to rise as problems persist. Analysts typically allow for output disruptions at about 4.5 percent, but given the outages already seen, the total in December could be much higher, possibly more than 7 percent. "Prices have fallen to the point where major miners are looking at cutting production and future spending, that's in addition to an abnormally large number of "typical" supply disruptions," said ICBC Standard Bank analyst Leon Westgate. "The copper market is already sowing the seeds for looming deficits and the next big rally in prices, starting towards the end of this year." Benchmark copper on the London Metal Exchange hit a six-year low at $5,142 this week on worries over demand from top consumer China and a firm dollar, which makes dollar-denominated commodities more expensive for non-U.S. currency holders. Dollar strength has been fuelled by expectations of higher U.S. interest rates, possibly as soon as September. "China slowdown concerns seem to be primarily among U.S.- and UK-based funds. Asian corporates appear to be amazingly unconcerned," said David Wilson, analyst at Citi. "Once there is clarity over U.S. rate rises, then the market can start looking at specific copper related issues, which are being ignored. One of these is large output losses at Canada's First Quantum Kansanshi mine, smelter and its greenfield Sentinel project in Zambia, running at reduced capacity due to a drought and power cuts. Chilean miner Antofagasta produced 303,400 tonnes of copper in the first half, down 12.9 percent from a year earlier and below the consensus due to declining ore grades, unfavourable weather and environmental protests. Morgan Stanley estimates copper production at Glencore's Alumbrera mine at 60,000 tonnes this year from 103,000 tonnes last year. The bank expects BHP Billiton's Escondida to produce 200,000 tonnes less in the second half of this year from the first half and remaining low next year. Other companies experiencing copper production losses include Chile's Codelco, due to floods and unrest and Canada's Barrick-Gold, due to power shortages and rain. Also on the horizon are contract revisions in August at Southern Copper's Cuajone and Toquepala mines in Peru, according Tristan Hobbs, consultant at CRU, which could provoke an escalation of unrest. (Reporting by Pratima Desai; Editing by Veronica Brown and David Evans)
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