Chile storm shuts mines, stokes AI supply chain risk amid deepening copper crunch

SEATTLE (Scrap Monster):  Concerns are growing over copper supply, a key raw material for the artificial intelligence (AI) industry, as operations at major copper mines have been halted one after another due to a storm that struck Chile. With copper demand rising on the back of AI data centers and the expansion of power grids and renewable energy facilities, the productivity decline at aging mines and supply disruptions caused by extreme weather are overlapping, raising prospects that uncertainty in the future AI supply chain could increase due to a deepening copper shortage.

On the 26th (local time), the Financial Times (FT) reported that Canadian miner Lundin Mining halted operations last week at the Caserones copper-molybdenum mine in Chile's Atacama region. The move followed power supply disruptions caused by heavy snowfall.

Chilean miner Antofagasta also suspended mining and processing at the Minera Los Pelambres mine for several days. Canadian miner Barrick Mining said on the 25th (local time) that it evacuated employees staying at a northern Chile mine camp by helicopter due to "unusual weather conditions."

The storm dumped heavy snow across the Andes, where major high-altitude copper mines are located. In low-lying areas, flash flooding occurred. According to Chilean authorities, at least 13 people were killed in the storm. State-owned copper company Codelco temporarily suspended operations at some major mines, including El Teniente, due to the snowfall. Global mining giants such as Anglo American of the United Kingdom and Australia's BHP are closely monitoring local conditions and coordinating with Chilean authorities.

In particular, copper production disruptions from this storm are adding to uncertainty in a market already facing heightened supply risks. Copper is an essential metal for building AI data centers and power grid and renewable energy facilities. Chile is the world's largest copper producer, accounting for about a quarter of global output.

Major miners have recently warned of declining copper output due to waning productivity at aging mines. Last year, a string of accidents and shutdowns at major mines sent copper prices to record highs. More recently, the possibility of a U.S. copper import tariff and increased buying from China have combined to keep copper prices on the rise.

Industry voices are also raising concerns about growing uncertainty in mine operations due to climate change. Miners typically factor a certain level of weather-related disruption into annual production guidance, but as established weather patterns shift, it is becoming increasingly difficult to predict the timing and scale of production hits.

There are also no shortage of structural factors that constrain supply expansion. According to the International Council on Mining and Metals (ICMM), one-third of the 12,000 metal and mining sites worldwide are in regions with intense competition for water and high drought risk. Chile was cited as one of the most at-risk countries. As ore grades (quality) decline, more water is needed to produce the same amount of copper, and older mines use more water. Albert Mackenzie, a Benchmark analyst, said, "If more mines are built in countries already experiencing water shortages, the pressure on the current system could increase."

Concerns about supply disruptions appear to be reflected in actual production results. An analysis this month by investment bank Jefferies of production data from major miners that account for about one-fifth of global mined copper supply found that global copper production in the latest quarter fell about 10% from a year earlier. Jefferies said the risk of a significant copper supply shortfall over the next 12 months has increased.

The International Energy Agency (IEA) also warned that key producers such as Chile and Peru will face increasing difficulty maintaining current levels of copper output. With copper demand continuing to rise due to AI and the shift to clean energy, disruptions tied to aging mines, water shortages, and climate change are expected to broaden supply chain uncertainty across global high-tech industries, including the AI sector.

Courtesy: www.biz.chosun.com