© Bloomberg. Workers stand near dump trucks at a mine.
(Bloomberg) — A strike at a major mine isn’t getting a lot of attention from investors, but it could end up packing a big market punch.
As traders focus on trade wars and geopolitical tensions, thousands of workers downed tools at top copper-producer Codelco’s Chuquicamata mine in Chile on Friday, according to Liliana Ugarte, president of Union No. 2. A prolonged stoppage would tighten global supply in a market where output is already expected to trail demand this year, analysts say.
A majority of members of Unions No. 1, 2 and 3 at the mine rejected the company’s last offer for a labor contract in a freehand vote on Wednesday evening. A strike started at the Santiago-based company’s third-largest mine at 5 a.m. local time. Copper futures in New York were little changed on Friday as investors weighed supply risks against growth worries.
“This will have an impact — Chuquicamata represents about 2% of global supply of mined copper,” said Cesar Perez-Novoa, an analyst at BTG Pactual in Santiago. “But right now the market is focusing on the trade war and on geopolitical tensions. The copper market is just not on investors’ radar.”
A stoppage at the mine could mean the metal falls into a wider deficit, estimated for this year at 189,000 metric tons by the International Copper Study Group. Chuquicamata produced 321,000 tons of copper in 2018 and output is expected to remain flat this year. But the effect of a prolonged strike could be felt more broadly, as the mine’s smelter and refinery process ore from all of Codelco’s northern division, which accounted for half of the state-owned company’s 1.68 million tons of output last year.
“This has the potential to tighten up the concentrate market further, depending on how long strike action lasts,” said Warren Patterson, an analyst at ING Bank. “Spot Chinese treatment charges have fallen for much of this year, suggesting that the concentrate market is already tightening.”
Investors are not concerned about the strike because it’s not likely to last long, Codelco officials told Edward Meir, an independent commodity consultant at INTL FCStone Inc., earlier this week. “We would agree with their assessment, as union ‘staying power’ tends to get diluted in situations when copper prices are depressed, as is the case right now,” he said in a research note on Thursday.
The three unions represent about 3,800 workers out of the mine’s 5,243, according to Codelco’s latest headcount on June 10. About 1,700 jobs will be cut as Chuquicamata moves from open pit to an underground operation.
Unions are demanding that the company include labor leaders in the negotiations to transform Chuquicamata into an underground mine. They also want better health-care coverage for existing and former workers, better redundancy packages for workers who will need to leave the mine and the same benefits for new and existing workers.
Once the strike starts:
- Codelco’s last, most generous offer stops being valid
- A skeleton crew of workers from Unions 1, 2 and 3 keeps key operations at the mine running; members of Chuquicamata’s two other unions should be able to work normally
Possible scenarios under Chile’s labor rules:
- Unions can accept Codelco’s initial offer at any time during the strike
- At any time during the strike the company can make a new offer, which a majority of workers will need to accept or reject in a secret vote
- If the offer is accepted, the strike ends
- If the offer is rejected, the company can make a new offer five days after the vote, and every five days after that
- On day 16 of the stoppage, miners can individually abandon the strike and go back to work, automatically accepting the company’s initial offer
(Updates with details of the strike on first and second paragraphs.)
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.