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Risk of disappointment for copper bulls as wage deals sealed

Metal News - Published on Mon, 12 Feb 2018

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Copper bulls who are betting on labour strife this year due to a full calendar of contract talks may be disappointed if early wage deals at two copper mines are a signpost for further agreements with mine workers.

Benchmark copper prices rallied 12% in December, partly due to fear of shortages if workers go on strike since many major operations in top producers Chile and Peru have contacts expiring this year, including at top mine Escondida.

Chile’s state owned Codelco said late last month it had struck a contract deal with workers at its Andina copper mine, while workers at the Lomas Bayas mine accepted a contract offer from operator Glencore Plc early in January.

Mr Ole Hansen head of commodity strategy at Saxo Bank in Copenhagen said that “The risk of disappointment is probably as big as the risk of it coming to fruition because just take a look at what happened last year.”

Mr Hansen said that “We had some quite significant disruptions and the price did not actually move that much at the time.”

The world’s biggest copper mine, Chile’s Escondida, was hit by a six week strike last year, pushing down output at the operation by 7.8% to 903,000 tonnes in 2017.

The strike ended when the union representing the striking workers opted to return to work under the old contract, effectively pushing talks on a new deal into 2018 for the mine operated by BHP .

Last week, the powerful union at the mine cast doubt on chances of starting talks on a new labor agreement with the company before formal negotiations scheduled for June.

Despite the tough talking by the union, several analysts believe there will not be a repeat of last year’s extended walk-out.

ING analysts led by Hamza Khan said in a note that “Looking at the major Escondida contract due for renewal in June, we would question the appetite for either workers or mining companies to withstand another lengthy strike.”

Several contracts due to be negotiated at other mines are with supervisors or professionals, who are regarded as less likely to strike, UBS analyst Daniel Major said in a note.

Even last year, when the copper market was hit by a series of disruptions, the actual amount of copper lost was less than expected, according to some analysts.

Ms Vivienne Lloyd analyst at Macquarie said that “Last year we were using 5.5% but as far as I’ve got to, it’s only realizing 5.2 % so far,” adding that the last year’s number could not be finalized until all the fourth quarter production reports were released.

Karen Norton at Thomson Reuters GFMS said provisional data showed a disruption rate last year of 5.1 %, close to the long term average and lower than in 2015, when it hit 6 %.

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Posted By : Amom Remju on Mon, 12 Feb 2018
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