The copper price could surge over the coming days after workers at the world’s biggest copper mine voted to go on strike.
BHP Billiton’s (BHP) 57.5%-owned Chilean mine Escondida accounts for an estimated 5% of global copper production.
Any disruption to output could cause the metal price to rise as markets price in a supply crunch. Rio Tinto (RIO) also owns 30% of the Escondida mine.
Shares in a few copper miners on the London stock market have started to rise as investors speculate about a new rally in the base metal. We would expect the broader sector to move upwards once the strike gets underway.
Kaz Minerals (KAZ) +2.3% to 481p
Antofagasta (ANTO) +1.4% to 846.5p
Reuters reports that the strike will begin later this week unless there is a government mediation to try and resolve the wage protests.
WHAT’S THE POTENTIAL IMPACT?
Investment bank Canaccord Genuity believes the strikes could start next week and last up to four weeks. It suggests the copper price could exceed $6,000 per tonne during this period.
Copper at $5,970 per tonne is presently trading at its highest level since summer 2015.
The copper industry has been fraught with labour problems for years with miners demanding better pay, an annual bonus and improved working conditions.
Escondida has suffered several major strikes over the past half-decade. A two-week strike in 2011 pushed up international copper prices.
The mine suffered labour strikes in 2013, alongside two other deposits controlled by BHP Billiton in Chile. A year later Escondida workers temporarily downed tools demanding better safety conditions.
STRIKES ARE SPREADING TO OTHER AREAS
A mining union in South Africa has threatened to launch wage-related strikes at thermal coal mines in the coming weeks.
Canaccord thinks this event could be positive for shares in Glencore (GLEN) and Anglo American (AAL) if the strikes drive up the coal price.
In Peru, Hochschild Mining (HOC) had to stop production at its Pallancata precious metals mine in December 2016 and January 2017 due to a road blockade by community members wanting a new land access agreement.
Randgold Resources (RRS) is currently battling a workers’ protest at its Tongon gold mine in Cote d’Ivoire with some employees demanding annual bonus payments.
