On Saturday February 27, a powerful earthquake struck Chile, causing a significant loss of life and damage to the country’s infrastructure.

The earthquake also had the effect of disrupting commodity markets, in particular the market for copper.  This is an important concept when doing stock market research.

Commodity prices are sensitive to a number of different factors.  Demand for commodities is one factor that can drive up commodity prices.

Another factor is a disruption, or threat of disruption, to the supply of commodities.  In economics, a shortage of supply leads to higher prices for a good.

Commodity markets work in a similar fashion, as a shortage in the supply of a resource tends to bring up its price. This highlights the importance of economic fundamentals in any stock market research.

Chile accounts for 30% of the world’s copper reserves, and its share of global production is 35%.  This makes Chile an important player in the market for copper.

When the earthquake struck there were reports that the country had suspended some copper production.  However, most copper mining was done in areas outside of the quake zone, so production was not materially affected.

This didn’t stop copper prices from soaring after initial reports of the earthquake, as the mere threat of a copper shortage was enough to drive up its price.

So when conducting stock market research, remember that there doesn’t need to be an actual disruption in commodity supply for prices to rise, just the threat of disruption is enough.

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