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Will BHP Billiton Compromise after Strike at Escondida Mine? What’s Impact on Copper Market? SMM Reports
Feb 13, 2017 11:44CST
Source:SMM
Workers at BHP Billiton's Escondida mine in northern Chile walked out on strike from February 9. SMM sees low chance for BHP Billiton to compromise to meet workers’ new requirements.

SHANGHAI, Feb. 13 (SMM) - Workers at BHP Billiton's Escondida mine in northern Chile walked out on strike from February 9. SMM sees low chance for BHP Billiton to compromise to meet workers’ new requirements after considering multiple factors. 

First, BHP Billiton registered a net loss of $6.39 billion during the fiscal year of 2016 (from July 2015 to June 2015), the biggest loss on the record. The company has not released its financial report for 2H 2016, but it is unlikely to see the huge losses to narrow significantly in only half a year. Hence, the company has no adequate cash liquidity to meet workers’ wage requirements. 

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Second, a typical collective bargaining procedure in Chile lasts about 80 days in according to the country’s labor law, including 30 days’ strike. But, there are no limits on negotiating time legally. After the talks, the employer and employee will sign a new labor contract, and the contract usually lasts for 2 or 4 years, a reason behind periodic strike. The employer and union usually starts the talks 45 days ahead of expiration of the old contract, and if the two parties fail to reach an agreement on new terms and clauses, the government will start a 5-day mediation work after being agreed by the two parties. 5 more mediation days will be added if the two parties require. The strike will begin if negotiations mediated by the government fail. The employer is able to employ temporary workers during the strike period, and the employment can be done immediately once wage is not below the original salary plus inflation rate. If not, replacement workers will not be deployed after 15-day strike. This means the employer is able to employ temporary workers or enroll new workers without adding wages after the strike time exceeds the time the employer expects. 

At present, production at Escondida mine has been halted, and the union said workers set up camp at the mine, and hoarded food and water for long standoff. SMM estimates the strike will not last for a long time as the longer strike, the bigger losses workers will face, and the strike will likely not exceed 30 days. 

The strike will affect daily production loss at the mine by around 3,000-4,000 tonnes (Cu content), SMM estimates. According to Wood Mackenzie, global copper ore output was 20.07 million tonnes (Cu content) in 2015, averaging 1.67 million tonnes per month. If the strike lasts for 30 days at Escondida mine, production loss will likely reach 90-100,000 tonnes (Cu content). The small amount, coupled with ample copper inventories, will play a small impact on copper market, and the major influence will be on market sentiment. 

“On the supply&demand front, copper market now has no rising strength, and in China’s market, it is a traditionally off-demand season, and domestic demand will not recover until after Lantern Festival on February 11,” SMM copper analyst says. 
On the SHFE, copper inventories are on the rise for season factor, and spot prices trade at discounts after returning from the holiday, giving no price rising strength, SMM adds. 

Salary negotiation at Escondida mine has been seen the benchmark to the industry, so eyes should be paid to the impact on talks at other large global copper mines which will face salary talks in 2017. Those talks will add production disruption to world’s copper ore mines in 2017, and the global ore output growth may be lower than previous estimation, and the combined impact on market price, on the other hand, will also be higher, SMM concludes. 

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