The deadly riots in Chile may be dominating headlines, but few are paying attention to how that could impact on ASX shares.
The violent protests that was triggered by an increase in metro train fares on October 7 have claimed the lives of at least seven people. Just like the Hong Kong riots, the civil disruption is threatening to stifle economic activity in the Latin American country.
The question investors should be asking is whether this is copper’s “Brumadinho” moment.
Iron ore prices surged higher following the tragic Brumadinho dam disaster in Brazil as that crimped global supply of the commodity.
Copper market getting interrupted
Chile is the world’s largest copper producer by a big margin. Even if you added the next three biggest copper producers (Peru, China and the United States), they still couldn’t match Chile’s 5.8 million tonnes copper output in 2018, according to data from Statista.
The market is yet to be spooked. The Comex copper price may have gained around 2% to US$2.63 a pound since the Chilean unrest, but it’s still hugging the bottom of its 52-week trading band.
But if the riots were to escalate, it could curtail the global supply of copper. After all, the country is home to the world’s largest copper mine, Escondida.
Workers at Escondida staged a 24-hour strike on Monday to show solidarity with protesters who are angry with the rising cost of living and social inequality, reported Mining.com.
Union No.1 is calling on all miners across Chile to down tools to paralyse the industry until military and oppressive forces are removed from the streets. The union may not have an imaginative name, but it’s managed to gain the support of other unions, including the umbrella group of unions and mining federations called CTMIN.
ASX winners and losers
Any sustained disruption to Chilean copper output could drive prices of the red metal higher. Several of our miners will benefit from the demand-supply recalibration, but not BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
Rio Tinto’s highly publicised troubles with the Oyu Tolgoi copper mine in Mongolia shows how difficult and costly it can be to bring new production online.
This leaves ASX copper miners with largely onshore operations in the spotlight. It’s the OZ Minerals Limited (ASX: OZL) share price and Sandfire Resources NL (ASX: SFR) share price that could be the biggest beneficiaries of a Chilean-triggered copper rally.
It’s safe to say that not much good news is priced into these stocks. OZ Minerals and Sandfire have been underperforming the broader market on worries of falling industrial production from the US-China trade war.
ASX mining investors should watch Chile closely.
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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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