Copper's going to popinteresting
LONDON -(Dow Jones)- As many copper market participants had suspected, the gap between the demands of unionized workers at Escondida and the offer of majority owner BHP Billion (BHP) was too large.
Rejecting Wednesday's offer as "a waste of time," workers at the giant Chilean copper mine are now gearing for a strike, beginning Aug. 7.
And on cue, London Metal Exchange three-month copper prices received a boost in early trade, moving from $7,765 a metric ton overnight to $7,915/ton.
Since July 24, when BHP Billiton made its first offer to workers, LME copper has risen 13% from $7,025/ton, and although current levels are still some way off the market's all-time high of $8,825/ton seen on May 11, metals participants now believe a strike at Escondida will see LME copper exceed this record.
"A strike at Escondida, combined with the loss of production at Codelco's Chuquicamata due to a rock slide, will tighten the copper market considerably and we'll see a corresponding rise in prices," said BaseMetals analyst Will Adams.
"The danger is that because it's summer in the western hemisphere and the market's are quieter, there will be a delayed reaction which will create a dramatic spike," he added.
Codelco Chief Executive Jose Pablo Arellano said Wednesday it will take three months to resume normal operations at Chuquicamata. The enormous mine in Chile's Atacama deserts is currently losing around 480 tons a day.
A strike at Escondida will also set the precedent for labor discussions at other major operations, including Chuquicamata, due later this year.
While metals participants said a last minute resolution to the Escondida situation is possible, the two positions remain extreme. Escondida workers are seeking a 13% wage hike and a bonus near $29,300, but Wednesday were offered a 3% pay rise and a $14,960 bonus.
Although up from BHP Billiton's original offer of a 1.5% wage increase and a much smaller bonus, the union overwhelmingly rejected it.
To add insult to injury, the offer was released to the public before it was revealed to the union.
"It was doomed from the beginning," union spokesman Pedro Marin told Dow Jones Newswires.
Escondida is the world's largest privately held copper mine, producing 1.27 million tons of copper last year, as well as 182,000 ounces of gold.
BHP Billiton controls the operation with a 57.5% stake, while Rio Tinto PLC (RTP) holds 30%, a Mitsubishi Corp. (8058.TO)-led Japanese consortium holds 10% and International Finance Corp. holds 2.5%.