(Aug 13: Workers at BHP Group’s Escondida mine in Chile began a strike on Tuesday after failing to reach a wage agreement with management, setting the stage for a major disruption at the world’s biggest copper operation.
The union’s 2,400 members downed tools after rejecting BHP’s latest proposal at the end of a five-day mediation process as part of a collective bargaining, the two sides said in separate statements.
The action will halt an operation that accounts for about 5% of all the world’s mined copper, disrupting shipments for Melbourne-based BHP, while potentially easing pressure on copper futures that have slumped in recent months along with dimming prospects for the global economy.
Futures were down 0.7% at 3.29pm on the London Metal Exchange.
Escondida churns out more than one million tonnes a year, making it by far the biggest supplier of copper. Some analysts see BHP Group overtaking Codelco this year as the top global copper producer.
Benchmark copper traded in London surged to record levels in May as bullish investors placed bets on shortages. That emboldened unions seeking a share of the windfall for their members. But prices have since pulled back by roughly 18%, undermining some of that leverage as companies look to avoid big increases in fixed costs in a cyclical and capital-intensive business.
Still, negotiations come at a time of tightness of copper concentrate — the raw material produced at Escondida and used to feed smelters — even though the market for refined metal is well supplied for now.
The market should be able to absorb a short strike, with demand looking “a little slack,” said Bloomberg Intelligence analyst Grant Sporre. “Anything more than a few weeks might start worrying the Chinese smelters who are already struggling with tightness in the concentrate market, with profitability under pressure.”
While collective bargaining in Chile is often marked by brinkmanship and last-minute agreements, Escondida has been the scene of lengthy stoppages in the past, including a 44-day strike in 2017. In February of that year, production plunged to about a quarter of normal levels, according to data compiled by Chile’s copper commission.
On Monday, the final day of mediated talks, BHP offered a signing bonus of 27 million pesos (RM128,620) per worker, as well as improvements in benefits. Workers had sought a bonus of more than 30 million pesos and a share of profit.
“Given the impossibility of moving forward and, as a consequence of this result, the contingency plan was activated before the start of the legal strike by the workers of Union No 1,” BHP said in a statement.
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