Commodity prices under the threat of operational disruptions: Labor strikes at copper mines

Abstract

The threat of short-term supply disruptions may matter for commodity prices, although their magnitude is hard to detect, for example due to anticipation, storage and to the relatively short duration of disruption events. This article explores global commodity returns for copper around labor strikes in Chile mines between 1910 and 2010. In the five days around strikes, copper display cumulative abnormal returns (CAR) close to 200 basis points (bps). Consistent with the threat of supply disruptions, the effect comes almost fully from strikes at larger mines (CAR≈ 500 bps). Moreover, the price-increasing effect of strikes is stronger when copper inventories are scarce, as measured by the interest-adjusted basis. Despite strikes being transitory events, we also find a mirroring appreciation of the USD/CLP commodity currency.