Copper workers test their power
Unions bank on metal’s rally as wage talks get under way in Chile
A wage negotiation at the world’s leading copper mine is showing producers the downside of recovering prices: workers want their share.
Talks began in earnest on Tuesday at BHP Billiton’s Escondida mine in Chile. In a preliminary phase, management rejected demands by Union Number 1 for a 7% pay rise and a bonus of 25-million pesos ($37,000), union spokesman Carlos Allendes said. Workers are scheduled to vote on a final proposal on January 24.
BHP did not comment.
As the industry emerges from a glut that sank prices, the Escondida negotiations are being keenly watched by producers and investors alike.
Unions are emboldened by a 25% price surge since mid-October amid shrinking global stockpiles. But prices and earnings are still a long way from the supercycle heyday of 2011, and shareholders are also looking for a payday by urging management to keeping costs in check to maximise profit.
Copper bulls know a prolonged strike would help their cause as the market tightens.
"The possibility of a strike is there," Allendes said.
"They have completely rejected our proposal, and our response depends on our conversations in the coming days. Higher copper prices should help us during the negotiations."
Escondida, which churned out 1.2-million tonnes of the red metal in 2015, would serve as a precedent for the other 15 contracts coming up for renewal in Chile, the biggest copper-mining country, BTG Pactual said in a note to clients this week.
There will also be talks at mines including Codelco’s El Teniente; and Barrick Gold and Antofagasta’s Zaldivar.
"A potential strike at Escondida would have an effect on the mining sector in Chile and in the rest of the world because it’s the first negotiation by a global company this year," said Cesar Perez, an analyst at BTG Pactual.
"If negotiations don’t progress, we contemplate the possibility of a strike that would deepen supply shortage in the market and increase prices."
In December workers in six unions at Codelco’s Chuquicamata mine signed a 27-month work contract that included no real wage increase and a signing bonus of 4.35-million pesos. The bonus was about 40% below the previous contract.
Codelco had managed to avoid any real wage increases in the past eight negotiations by getting workers to buy in to its austerity push after the state-owned company’s debt and spending burdens mounted and ore grades deteriorated, CEO Nelson Pizarro said.
"We didn’t budge," Pizarro said on Tuesday, referring to Chuquicamata. In the end, "our people understood".
In the Chuquicamata talks, "all parties were responsible about restrictions in the industry", Finance Minister Rodrigo Valdes said on Tuesday. "I hope this spirit is present in the important negotiations taking place these days."
The agreement at Chuquicamata boded well for Escondida, Dane Davis, an analyst at Barclays in New York, said. Still, there was a reasonable chance of a supply interruption, he said.
"You’re looking at a 60% probability, give or take, that things are fine," Davis said. "But you’re still looking at 40% that a strike could happen. I don’t know if it’s a black swan, but it’s certainly major."
The potential for strikes globally was increasing as copper prices recovered, Citigroup and Barclays said in research notes.
Strikes "tend to be more prevalent in periods of rising copper prices", Citigroup said.
About 3.5-million tonnes of mine capacity, or 17% of global planned production, have labour contracts up for renewal in 2017. That was the highest volume to be affected by contract talks in four to five years and the bulk of it was in Chile, Citigroup said.
"There is a potential for it to move the market if there were a strike," Davis said.