High-stakes labor negotiations await Chile’s copper miners in H2 2021

Chile’s copper miners face the biggest set of labor negotiations in years, but with prices expected to maintain current highs, how high is the risk to output disruptions? Fastmarkets investigates.

More than 40 labor negotiations are due to take place this year at mines in Chile, the world’s leading copper producer, against a backdrop of almost decade-high metal prices and elections set to be hotly contested in a country where the Covid-19 pandemic remains critical.

Around 60% of Chile’s copper output in 2020 (equivalent to 5.73 million tonnes) was produced in mines that have union negotiations this year. Together, these mines represent around 17% of the world’s total mined copper production, International Copper Study Group (ICSG) gures show.

Negotiations will start in the coming months amid rising copper prices and an expected growth in demand due to ‘green energy’ eorts around the world and improving economies following the end of the respective recent waves of the Covid-19 pandemic.

The LME copper cash price reached $9,648.50 per tonne on February 26 – its highest since July 2011 – and has held around $9,000 per tonne since, increasing by just over 10% since the year started.

“If the rhetoric starts to heat up, then there is the potential for prices to react higher and TC/RCs to react lower, especially given how tight the concentrates market is and how nervous the market is over supply,” Fastmarkets analyst Andrew Cole said.

”If the price of copper is to remain at a high level, this would have an impact on the expectations of workers but also provide greater possibility of [higher] payment from these companies,” executive director at Chilean mining consultancy Plusmining, Juan Carlos Guajardo, said.

Negotiations still to come

Some key negotiations have already concluded, but almost half – including those at some of Chile’s biggest mines – are set for the second half of 2021.

Plusmining estimates that only 17 labor negotiations have been concluded out of the total 46 due in 2021, either through anticipated agreements or in their regulated schedule. The contracts of more than 20,000 workers, supervisors and administrative sta are set to be determined this year, representatives told Fastmarkets.

Over the summer, Codelco negotiate with over 2,000 workers in its El Teniente operation – which produced 44,400 tonnes per year of copper in 2020 – all belonging to dierent unions. Codelco has already settled one agreement with the supervisors at the mine last year, it said.

BHP also faces deal-brokering with some 2,000 workers at Escondida – the world’s largest copper mine, which produced 1.049 million tpy of copper in 2020. BHP’s contract with its workers expires on August 1, with the negotiation process due to start in June, local sources said.

Other companies with pending contract renewals this year include Anglo American, Lumina Copper (or First Quantum), Compañía Minera del Pacíco and Albermale.

When both sides sit down to talk, high copper prices can be a double-edged sword for mining companies, who are nally amassing funds for investment after years of cutting costs and budget readjustments.

“Unions might see a chance this year to say: listen, there are no more excuses, we need to be paid more,” a source at a copper mining company told Fastmarkets.

“When prices are high and workers have concerns for safety and workforce reductions – both due to Covid-19 – then it’s fair to say that there’s more chance of negotiations turning dicult and leading to a strike,” Fastmarkets’ Cole said.

Los Pelambres negotiations, risk of strike set a precedent

The market got a renewed sense of what could happen when negotiations are not nalized amicably between companies and unions during their regulated period already this year.

LME copper’s cash price rose up to $9,000-9,100 per tonne in the days leading up to the end of negotiations between workers and company representatives at Antofagastas’ Los Pelambres mine amid market concerns there would be a strike.

After failing to reach an agreement in the prescribed negotiation time, the company and workers had to enter government-led mediation and managed to prevent a strike after nearly two weeks of talks concluding with a 36-month contract agreement.

Antofagasta avoided the strike by agreeing a 3.4% rise in salary for miners and including an improvement in other benets and bonuses, so the deal was valued at more than $19 million, local media sites said.

Although Los Pelambres was Antofagasta’s only labor negotiation for this year, Codelco – Chile’s state-owned mining company and largest global copper producer – still needs to organize contracts for half of the country’s workers.

Some unions have reached agreement with Codelco in recent months, such as workers at the Radomiro Tomic and Ministro Hales projects, but other agreements – such as ones at the El Teniente mine aforementioned – are still to be made.

“It’s probable that the agreements reached in the negotiations at Los Pelambres will have an impact on the other negotiations in 2021,” Guajardo said. “If copper’s price remains at high levels, the benets agreed at Los Pelambres could become a reference point [for other negotiations], especially for bigger labor unions [representing workers at] important operations, due to be brokered in the next two to three months.”

Just two days after workers at Los Pelambres made an agreement with Antofagasta, miners at Codelco’s Andina division rejected their company’s rst oer – reportedly valued at $11.5 million – ending the possibility of getting a contract agreed with its workers, which is the preferred way to settle labor negotiations.

Codelco’s negotiation with nearly 1,000 workers in Andina represented by two unions will have to undergo the regulated collective negotiation process, with those workers’ current contract set to expire on July 31.

A key political year in metal-producing Latin American countries

There are other factors that add weight to the possibility of industrial action this year, including the country’s socio-political situation, Guajardo said.

Chile is set to vote on a new constitution next year and the constitutional process for the change will begin in May, when there are elections to vote for the 155-member committee that will write the text.

“The country is in a key political year when its institutional foundations will be discussed and reviewed. During this period, conict and social tension could increase, which could eventually inuence some unions,” Guajardo said.

Originally set for April, the elections were delayed to May 15-16 given the record numbers of Covid-19 cases in Chile, which also forced the country to close its borders for the month.

Concurrently, Peru is in the middle of a presidential election and both countries’ unions usually look to each other as reference points in their collective demands, sources said.

Social and environmental demands have also gained traction in negotiations in the past few years, even leading to road blockades, such as those in Las Bambas in 2020 and increased possible contention points during labor negotiations.

“No company wants there to be strikes [at its mines] ahead of election periods so, in general, administrations could be more exible when negotiating bonuses. Unions know this and will try to hedge on that fact,” the rst source said.

Fastmarkets research, however, shows that global copper mine production losses due to strikes has averaged just 58,000 tpy for the last three years.

That’s pretty low, comparatively, the major years for copper production losses came in 2009, 2010 and 2017 – when the output shortfall came to 300,000 tpy, Cole said.

Source: Fastmarkets