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The copper market has been rattled by an increase in worker uprisings, as employees are, once again, asking for increased wages and job stability as they see their companies raking in profits on the back of relatively high copper prices.
By Leia Michele Toovey- Exclusive to Copper Investing News
In June and July, workers staged walk-outs in both Indonesia and Chile. The most recent walk-out impacted all of Chilean state-owned copper miner Codelco’s mines. On July 11, workers organized a 24-hour strike. The strike was pre-planned and intentionally scheduled for the anniversary of Chile’s decision to privatize its mining sector. The workers went on strike to let Codelco know that they want a greater say in the country’s restructuring of its mining sector. Codelco, run by former BHP Billiton (NYSE:BHP) base metals Chief Diego Hernandez, is modifying its business plan in order to improve efficiency after years of disappointing financial results. Hernandez has said that he would not bow to union pressure and will move ahead with cost-cutting measures that include job cuts and an overhaul in the workers’ health system.
Union leaders claimed that the protest was a triumph. “This was a successful stoppage and now it is clear how much we are worth,” said Hernan Garrido, a union leader at the El Teniente mine. The union also warned that this recent strike is only the first. “Now the (Codelco) administration must look at us differently because otherwise this is the beginning of more strikes,” added Garrido. This interruption, which Codelco claimed was illegal, resulted in an estimated production loss of about 4,900 tonnes of copper, worth approximately US $40 million at current prices.
The strike did little to impact global copper prices, and instead, prices were in the red as resurrecting concerns over the Euro Zone debt crisis pushed copper futures lower. Copper for three-month delivery was selling for around $9,580 a metric tonne on the London Metal Exchange Tuesday. Historically, copper prices have experienced price spikes in the wake of labour disputes; however, this recent disruption had limited influence on prices, partially due to its finite time stamp. On Tuesday, workers at Chile’s Codelco mines returned to work.
The pre-planned 24-hour walk-out was just one occurrence in a string of recent labour disruptions to hit the copper market. Chile’s El Teniente copper mine was rocked by near month-long violent protest as contractors disputed the payment of bonuses to full-time employees, but not contractors. Roughly half of the contract workers walked out and sought attention with violent behavior, including blocking roads and throwing rocks at buses transporting workers to the mine site. The violent behavior also caused full-time employees to stay home from work. As a result of the protests, El Teniente lost roughly $100 million dollars’ worth of metal output.
While the disruptions were ongoing at El Teniente, workers protested in Indonesia. Employees went on strike at Freeport McMoRan’s (NYSE:FCX) Grasberg copper and gold mine requesting higher wages, and the reinstatement of union leaders. The dispute has since been resolved, and workers will be back this Wednesday after their union, said the firm, agreed to its demands in talks on Tuesday.
While the recent supply disruptions may have had limited effects on copper’s prices, pessimistic macroeconomic data can dictate copper’s price direction. However, properly timed disruptions have a possibility to cause rapid price climbs. A strike’s influence on prices depends largely on two factors, the current supply/demand balance, and the duration of the strike. With a market already in deficit, any threats to the supply chain could result in a spike in prices.
The copper markets’ fundamentals are already in position for volatile price surges. As the supply deficit deepens, and copper prices ascend with the economic recovery, analysts are already voicing their concerns that labour disruptions will be a big story maker in the months to come. It is in the best interest of mining companies to find ways to peacefully resolve their supply disruptions as quickly as possible. As copper supplies become harder to come by, future labour disruptions could very likely result in mining companies becoming unable to meet their supply obligations with purchasers, which ultimately will mean a loss of earnings.