Electricity Shortages Are Driving Up Mineral Commodity Prices

Source: "Chilean Drought, Power Shortages Drive Up World Metal Prices," Saijel Kishan and Gavin Evans, Bloomberg News via The Washington Post, May 11, 2008.

Excerpts:

Chile's worst drought in five decades and power rationing from South Africa to China mean the price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world's biggest mines.....

Runaway growth in emerging markets is squeezing world oil supplies and has led to electricity shortages, cutting output of commodities needed to meet ever-rising demand. Platinum jumped to a record in January after mines in South Africa closed for five days because utilities were rationing power. Cobalt rose 58 percent in the 12 months ended May 2 as production growth in Congo was limited by electricity supply....

Freeport-McMoRan Copper & Gold, the world's biggest publicly traded copper producer; Cia Vale do Rio Doce, the largest in iron ore; and gold producer Newmont Mining all say power shortages threaten to reduce production.

Rio Tinto Group, the second-biggest aluminum producer, cut output at its New Zealand smelter by 5 percent, or 1,400 metric tons a month, May 1 because of power constraints caused by drought. Anglo Platinum, 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.

Smelting aluminum uses about four times as much power as for copper and more than twice that of zinc, Barclays Capital said. About 80 percent of world aluminum smelting capacity is in nations at risk of electricity shortages, according to Citigroup.....

Chile, the world's biggest copper producer, faces the risk of energy rationing after the worst drought in 50 years lowered hydropower reserves during a shortage of natural gas for generators.

Comment: A perfect storm? Increased demand for raw materials from Asia, reduced supply from electricity poor nations responsible for primary production, and a weak dollar make mineral commodity prices rise especially fast for Americans.

The shortage of electrical power is in part due to a failure in investment in power generating capacity, which in turn may be due to failure of international donors to invest in the sector. Hydropower is often a good investment alternative, providing clean energy at an affordable cost. But it has often been a target of environmental NGOs that scare multinationals.

I underline the importance of engineers to provide the infrastructure needed for economic development. JAD