London 25/08/2016 - Copper market supply from dominant producer Chile faces a shake-up after a calmer-than-average year, with miners Anglo American and Codelco starting what could become fiercely contested wage negotiations with workers at mines there.
Anglo American is in talks with unions at its massive Los Bronces mine, which produced more than 400,000 tonnes of copper last year. Similarly, state-owned Codelco has started to negotiate with workers at Salvador, which mined a more modest 49,000 tonnes last year.
The absence of strikes and other disruptions to the mining complex has been a key reason why copper prices have remained depressed so far this year. On the LME, three-month metal has been close to 2009 lows all year and was last at a soft $4,638 per tonne.
Similarly, copper concentrate TC/RCs - discounts on copper metal prices paid to smelters for the costs of processing concentrate to metal - are averaging $98-103 per tonne/9.8-10.3 cents per pound, above this year's annual benchmark of $97.35/9.735 cents in a well-supplied market.
In a report last week, Morgan Stanley maintained that mine supply of copper will exceed initial forecasts by 230,000 tonnes this year if mines continue at the current year-to-date supply disruption level of 1.8 percent.
A TALE OF TWO MINERS
Codelco and Anglo have taken different tacks at the start of wage talks, which centre on contract renewal bonuses and loans.
Anglo has offered unions at Los Bronces 8.5 million pesos (around $12,700) per worker and soft loans of 2 million pesos. But workers there have rejected this and are demanding around 10 million pesos each. Operations at the mine were temporarily halted in 2014 after violent protests by contract workers.
Anglo American is in negotiations with unions at Los Bronces, it confirmed to FastMarkets, but declined to comment further.
Meanwhile, Codelco has offered Salvador unions 2.5 million pesos (around $3,750) per worker and could raise this to 3.5 million pesos but without loans. Unions want more as well as soft loans and have threatened to strike if their demands are not met.
"Salvador's workers claim that they have done a big effort in order to reduce costs over 60 percent in three years, therefore they deserve something similar to Los Bronces," a consultant in Chile told FastMarkets.
Codelco president Nelson Pizarro has responded by saying the company is prepared to shut down the mine if strikes occur. A month of strikes at Salvador would cost Codelco $21 million, he said; workers are asking for a total of $25 million.
"Salvador has always been in the eye of the hurricane for a number of years - it's the highest cost of all Codelco's mines… I think [Codelco is] going to fight; they're not going to accept higher," a copper trader in Chile said.
Unions representing workers at the company's Chuquicamata mine, who start their own negotiations in January 2017, are keeping a watchful eye on the current contract talks.
One of the world's largest open pit copper mines, Codelco's Chuquicamata division produced 309,000 tonnes of copper last year or 16 percent of the company's total output compared with Salvador's 2.5 percent. The mine is also subject to major structural changes, transitioning over the next three years to underground mining.
So Codelco has good reason to drive a hard bargain at Salvador - it is unwilling to set a precedent for fear of locking in higher costs in a low-price environment.
"Union bosses envisage that [Pizarro] will live up to his word as he doesn't want to go down in history as having been a contributor to disastrous results in the company," a second copper trader said.
(Editing by Mark Shaw)