Bloomberg.- Copper, sometimes referred to as having an economics Ph.D for its ability to track the economy’s health, is on a tear. But it’s supply rather than demand that’s filling headlines in the current rally.
Coming after Chinese consumption recovered and Donald Trump pledged a $ 1 trillion infrastructure spend, the prospect of a prolonged stoppage at BHP Billiton Ltd.’s Escondida mine in Chile is getting copper bulls excited and spooking the owners of other mines with labor contracts up for renewal.
As commodity markets emerge from global gluts, the interest in Escondida shows the focus is back on the supply side. Here’s why the stakes are so high.
First of all, it’s big. Escondida, the world’s largest copper mine, churns out more than a million metric tons of the metal a year, or about 5 percent of global production. At that rate, the week-long strike by 2,500 workers has already cost about 21,000 tons, enough to wire a million cars.
Timing is also critical, coming as the world’s second-biggest copper mine, Freeport-McMoRan Inc.’s Grasberg, is winding down output as it tries to renew export permits with Indonesia.
Escondida has declared force majeure on its shipments, a contractual clause used when suppliers can’t meet obligations because of circumstances beyond their control. That helped send copper to the highest price since May 2015 as stockpiles tracked by the London Metal Exchange are shrinking.
This may just be the tip of the iceberg as union leaders say they’e preparing for a two-month-long strike, which is likely to influence upcoming wage negotiations at other Chilean mines this year.
While Chilean authorities are trying to organize a meeting to discuss a new round of talks, the two sides’s wage expectations still appear worlds apart.
Workers are emboldened by copper’s more than 30 percent gain in the past year, while BHP is striving to contain costs and boost productivity as the quality of ore deteriorates and the industry emerges from a global glut.
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