Copper Tops $6,000 as Escondida Strike Vote Escalates Risks

Updated on
  • Stoppage at northern Chile mine could start as soon as Monday
  • Citigroup has warned of strike risks after prices rallied

Workers at BHP Billiton Ltd.’s Escondida copper mine in Chile voted against the company’s latest wage offer, opening the door for a strike and potentially heralding a wave of stoppages at global suppliers after a rally. Prices rose above $6,000 a metric ton in London.

Some 99 percent of members voted in favor of a strike, which could start on Monday, according to a statement from Union Number 1. Its 2,492 members represent about 95 percent of Escondida’s workers. The project is the world’s largest copper mine, and is forecast to produce about 1.1 million tons in the 12 months to June 30, according to BHP.

Copper has surged to the highest since 2015 as demand recovered and investors anticipated higher infrastructure spending from Donald Trump’s new administration. Citigroup Inc. has warned of the increased risk of strikes this year as workers seek pay rises, with almost a fifth of global mine capacity facing contract renewals. While there’s still time for an 11th-hour agreement under Chilean law, a strike at Escondida would serve as a precedent for another 15 contracts up for renewal in the country, according to BTG Pactual. 

“The strength of the vote closes the door to any attempt by the company to introduce its disastrous plans to lower costs through making the workforce cheaper,” the union said in the statement. “If Escondida imposes its policies, it will pave the way for other companies to do the same.”

A request for comment from BHP wasn’t immediately answered.

A strike at Escondida would add to expectations of more disruption in copper this year after a benign 2016, UBS Group AG analyst Daniel Morgan said by phone from Sydney. About 1 million tons of output, or 5 percent of supply, may be disrupted in 2017 compared to around 600,000 tons last year, he said.

Grasberg Dispute

Three-month copper -- which has risen about 32 percent over the past 12 months -- ended at $5,991 a ton on the London Metal Exchange on Tuesday, the highest close since June 2015 as the Escondida vote was under way. On Wednesday, the metal gained as much as 0.3 percent to $6,007, before retreating to $5,969 at 2:05 p.m. in London.

The potential stoppage at Escondida coincides with an interruption to supplies from Indonesia’s Grasberg, the world’s second-biggest mine, where exports of concentrate have been halted amid a dispute between Freeport-McMoRan Inc., the world’s biggest publicly traded copper producer, and the government.

A halt to shipments from Grasberg, flooding and road disruption around Freeport’s Cerro Verde mine in Peru, and some shipping delays because of poor weather in northern Peru are among issues impacting supply, Morgan said. “The copper price does seem to be supported,” he said. UBS forecasts the metal to average about $6,600 a ton this year.

Pay Demand

In talks through January at Escondida, the company offered workers no wage increase and a reduction of benefits, according to the union, while workers demanded a 7 percent pay rise and a bonus of 25 million Chilean pesos ($39,000). In a statement on Jan. 24, Melbourne-based BHP said it has kept full health-care coverage for workers and added new benefits.

Chilean rules give both sides two days to ask for an extension of five working days to continue negotiating. If they do, talks would run until next week, when an additional five-day extension could be requested.

The union doesn’t plan to request an extension, spokesman Carlos Allendes said by telephone Wednesday.

“If the company requests the extension it has to use it to put forward concrete proposals,” he said. “If it uses these extra days to propose the same, it will be mocking workers, but if we see real advances then we would agree to extend the negotiation five more days.”

Last month, a strike at Yamana Gold Inc.’s El Penon gold-silver mine in Chile ended after the Toronto-based company offered to pay a 13 million-peso bonus, a 30,000-peso salary increase this year and 10,000-peso raises in 2018 and 2019, according to Chile’s Mining Federation. 

Workers in six unions at Codelco’s Chuquicamata mine signed a 27-month contract in December that included a signing bonus of 4.35 million pesos but no real increase in wages. The bonus was about 40 percent below the previous contract.