Supply of quality copper concentrate shrinks, sows seeds of price support

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* Flooding stalled mining in Chile

* Hit production of quality copper concentrate

* Should boost copper prices later this year

By Melanie Burton and Yuka Obayashi

MELBOURNE/TOKYO, July 3 (Reuters) - Supply of high quality copper concentrate shrank more than expected in the first half of this year due to output delays in top miner Chile, squeezing the pipeline for metal producers and likely supporting prices later in 2015, traders said.

Production from two of four mines in Chile that churn out clean, standard concentrate was stalled in the first half as the country was hit by floods, while the world's top mine, Escondida, has not tendered surplus concentrate for months, the traders and mining sources said.

Smelters blend clean concentrates with supply from mines that suffer from impurities such as arsenic, which have become more common as miners dig deeper into the earth's crust.

"The concentrate element is tightening up which will eventually flow through to a tighter refined market," said analyst Colin Hamilton at Macquarie in London

Benchmark LME copper has shed 8 percent this year as China demand slows, plumbing six-year lows in January. It traded at $5,800 a tonne on Friday.

President Yukio Uchida of JX Holdings (Other OTC: JXHGF - news) told Reuters that production at Chile's Caserones mine, in which it holds a majority stake through its smelter, had been slow.

"Copper output at Caserones came at a low level for the January-June half due to the problem of slag disposal on site and floods in Chile," he said, without giving a specific figure.

But Uchida added that the firm was on track to expand output to full capacity in August or September, and that it was maintaining its forecast production of 90,000 tonnes of copper concentrate this year.

Elsewhere in Chile, the Sierra Gorda mine, owned jointly by Japan's second-largest copper producer, Sumitomo Metal Mining (SMM), and Polish producer KGHM Polska Miedz, began commercial-scale production six months behind schedule at the end of June.

Sumitomo said this week that it still planned to produce 123,000 tonnes of copper from the mine's concentrate this year, up from 11,000 tonnes in 2014.

Shipments from the world's biggest copper mine, Escondida, jumped in the first quarter, but fell 9 percent in April from a year earlier, Chilean customs data shows.

"They don't have any extra tonnes to tender ... I think they'll probably try to make their end of June number, to try and maintain their guidance, but I expect their production numbers for the second half to be poor," a trader said.

A spokesman for the mine's operator, BHP Billiton (NYSE: BBL - news) , declined to comment. BHP has said it expects Escondida to produce 1.22 million tonnes for the year to June.

Chile, which produces a third of the world's copper, was hit by heavy rains this year that flooded towns, wiped out roads and cut electricity. (Additional reporting by Rosalba O'Brien and Anthony Esposito in Santiago, Osamu Tsukimori in Tokyo and Josephine Mason in New (KOSDAQ: 160550.KQ - news) York; Editing by Joseph Radford)