Amid concerns about supply disruptions, after an 8.3 magnitude earthquake shook Chile and triggered tsunami alerts for Chile and Peru, copper prices soared to its highest in nearly two months.

The quake was the sixth-worst in Chile and the world’s strongest this year. The Chilean government has sprung into action to issue tsunami and mass evacuation alerts. The previous 8.8-magnitude quake in 2010 had claimed more than 500 lives, devastating large areas of the country.

With memories of the tragedy still raw, and considering that Chile and Peru are the two biggest copper suppliers in the world, the news lifted copper for three-month delivery on the London Metal Exchange to $5,440.50 a ton in early trading on Thursday. The figure was the highest since July and increased more than 10% from a six-year low hit last month. Analysts expected the catastrophe to damage mines and thus disrupt and delay shipments of copper out of Chile, which alone caters to a third of the world’s copper requirement.

Mining operations were suspended at two major copper mines in Chile operated by Codelco and Antofagasta for safety reasons as several aftershocks continue to shake the region after the initial earthquake. However, as reports started pouring in from Chilean miners that their workers were safe and operations were undamaged, copper prices retreated from the peak to settle at $5,341 per ton.

The Coquimbo port that suffered severe damage from the quake handles only small shipments of copper. There were no reports of major copper export ports being damaged, which quelled fears of supply disruption. Chilean state-controlled miner, Codelco announced that its Ventanas division has restarted, while Andina remains halted until inspections are concluded.

Antofagasta stated that its flagship Los Pelambres mine which produced over 400,000 tons of copper last year, had no reports of damage and is expected to restart after completion of inspections. Thus the effect of the quake on the copper prices was not as expected.

Even if this copper price level persists, it will be beneficial for the red metal as the prices had been languishing near six-year lows so far, amid slowing demand from its top consumer China. Moreover, apprehensions surrounding Europe, continued U.S. dollar strength and weakness in commodity prices have kept copper prices under pressure.

China’s shrinking appetite for copper has hit the metal particularly hard as the country is responsible for over 45% of copper consumption. Demand from China has declined by 3% so far this year, even as global production has increased 3%, according to the International Copper Study Group.

The International Copper Study Group has projected that the copper market, after five straight years of deficits, should swing into a 2015 production surplus of roughly 390,000 tons. According to ICSG projections for 2016, the copper market may show a second consecutive production surplus relative to demand. However, this is expected to be lower at 230,000 tons as demand growth outpaces production growth.

But global miners such as Glencore and Freeport-McMoRan Inc. FCX have announced cutbacks as some operations become uneconomic, hence tightening the supply and making certain analysts cautiously optimistic on the metal.

Copper is a major industrial metal playing a particularly important role in emerging countries. Given its varied applications, the trends in the copper market are often considered useful indicators of the state of the global economy. The economic outlook for 2015 is upbeat for the U.S. while the European economy is recovering slowly. We believe a pickup in economic activity will eventually drive copper demand.

Notwithstanding the current volatility in prices, we have a long-term bullish stance on copper, supported by its widespread use in transportation, manufacturing and construction, limited supplies from existing mines and the absence of new significant development projects.
 
At this juncture, we suggest watching out for these companies with exposure to copper. Armed with a Zacks Rank #3 (Hold) we believe, these stocks are compelling investments given their strong fundamentals.

Freeport-McMoRan Inc.

Phoenix, AZ-based Freeport-McMoRan is a natural resource company, which engages in the acquisition of mineral assets, and oil and natural gas resources. It primarily explores for copper, gold, molybdenum, cobalt, silver, and other metals, as well as oil and gas.

Freeport has a positive long-term outlook for its business, considering the limited supplies of copper and the metal’s growing demand in the global economy. However, the company is attempting to cope with weak market conditions in the near term by delaying investments and adjusting operations to maximize its current cash flows.

BHP Billiton Limited BHP

Melbourne, Australia based BHP Billiton discovers, acquires, develops, and markets natural resources worldwide. It operates through Petroleum and Potash, Copper, Iron Ore, and Coal segments.

BHP Billiton announced that its Escondida mine, which is located in the Atacama Desert in northern Chile, has not been affected by the earthquake. Escondida, the world's largest copper-producing mine, accounts for around 5% of global copper production and around 15% of Chilean copper production. The company remains focused on improving its business through of cost-saving programs, strategic portfolio simplification and improved productivity.

Rio Tinto Plc RIO

Based in London, the United Kingdom, Rio Tinto plc, a mining and metals company, finds, mines, and processes mineral resources. The company mines and produces aluminum products, including bauxite, alumina, and aluminum; copper, gold, and silver.

Rio Tinto continuously strives to improve its financial fundamentals with the help of greater cost discipline, strategic capital-deployment programs and new growth projects.

Southern Copper Corp. SCCO

Based in Phoenix, AZ, Southern Copper Corporation engages in mining, exploring, smelting, and refining copper and other minerals in Peru, Mexico, Argentina, Chile, and Ecuador.

Southern Copper believes short-term copper demand is consistently improving. For 2015, the company expects the U.S. and Western Europe to drive copper demand globally. It is also seeing improvement in copper pricing. The company continues to work on developing its investment program to boost copper production capacity by about 89% to 1,165,000 tons by 2018 from its 2013 production level of 617,000 tons.

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