BHP Said to Declare Force Majeure on Copper From Escondidaby and
Prolonged shutdown at biggest mine seen spurring price gains
Market impact likely to be faster than previous strikes: ANZ
BHP Billiton Ltd. declared force majeure on shipments from the world’s biggest copper mine, according to two of the company’s customers, sending prices above $6,000 a ton.
The Melbourne-based miner told smelters that buy concentrates from Chile’s Escondida mine that shipments will be disrupted after workers began an indefinite strike, said the people, who asked not to be identified because the information is private.
Copper climbed 4.1 percent to $6,060.50 a ton as of 3:08 p.m. in London, reaching the highest since 2015.
A spokesman for BHP Billiton did not respond to a request for comment. Meaning “greater force,” force majeure is a contractual clause used when suppliers can’t meet obligations because of circumstances beyond their control.
Escondida in Chile produced about a million metric tons last year, which means the strike would remove about 2,700 tons a day from global supply. A year ago, that wouldn’t make much of a splash in glutted commodity markets. Now, with supply tightening, the lead-up to the stoppage helped send prices higher. While the strike’s start on Thursday was well telegraphed and copper didn’t react, a prolonged shutdown would support price gains.
The response in the copper market is likely to be “quicker than what previous strikes have created,” Daniel Hynes, an analyst in Sydney at Australia & New Zealand Banking Group Ltd. said Friday in an e-mail. “Normally management don’t shut down output immediately. Maybe that’s a sign that they believe this strike could go on longer than normal.”
With all operations halted at Escondida, union spokesperson Carlos Allendes said stockpiles won’t last more than a week. Union members are building a camp outside the mine designed to last at least two months given how little ground the BHP Billiton Ltd.-owned mine ceded during wage talks. BHP’s principle objective is the safety of “people and installations for the duration of the legal strike,” the company said in an e-mailed statement.
A fire broke out in a dormitory at the Escondida mine on Friday, injuring three people working on a plant expansion, but none of them critically. BHP said the blaze has been controlled and the cause is being investigated.
The strike comes as exports are halted from the world’s second-biggest copper mine at Grasberg in Indonesia. A 20-day stoppage at Escondida and a one-month delay to exports at Grasberg would result in an output loss of almost 100,000 tons, including 64,000 tons from the Chilean mine, Goldman Sachs Group Inc. said a note dated Feb. 8.
“If the strike extends beyond two to three weeks, then we’ll see the market become a lot more concerned as we move into a period when demand in China will be starting to pick up,” Mark Pervan, a Sydney-based chief economist at AME Group said by phone. The muted price response reflects weaker Chinese demand during winter and the Lunar New Year period, and the fact labor negotiations were flagged in advance, he said.
Barclays Plc analyst Dane Davis also said the physical copper market will start to feel the effects of the lost production in Chile if it lasts more than a couple of weeks.
About 56,000 tons of output could be lost at Escondida based on a two-week long strike, according to Macquarie Group Ltd. “The duration of the strike is uncertain, but we have incorporated a two-week shutdown and subsequent ramp-up into our estimates, in line with the 2011 strike,” Macquarie analysts said Friday in a note.
Contract negotiations are looming at mines in Chile that collectively account for about 14 percent of production capability in 2017, according to ANZ. Disruptions at Escondida and at other operations in Chile would probably push the copper market into a deficit of about 100,000 tons this year, the bank said in a Dec. 9 report.