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OUTLOOK 07: Copper Strike Potential May Be Less Than In 06

(02 apr 2007) Labor-related supply disruptions to the copper market in 2007 may not be as pronounced as in 2006, although there is still potential for high prices to trigger "go-slows" or "wildcat" strikes, analysts said. Also, there is always a chance of politically related disruptions, especially with many of the world's major mines in developing countries. A series of events took copper to record-high prices in late spring and kept them well above end-of-2005 levels since. These included good industrial demand as well as investment interest in copper and other commodities. Over the last year, there were also a number of strikes that cut into output,
plus some near strikes that supported prices. Some strikes in Mexico were over union leadership issues. However, a more common theme was workers trying to get a larger share of the pie as they saw copper hit record high prices. Now, multi-year labor agreements appear to be in place at many of the world's
larger mining operations or should be soon, which would mean less potential for disruptions in 2007, analysts said. A labor deal in late summer ended a roughly one-month strike at the Escondida mine in Chile, which accounts for an estimated 8% of global output. A settlement with workers at Canada's Highland Valley was reached minutes before an old contract expired Sept. 30. A major negotiation is occurring as 2006 winds down. While Chile's Codelco settled with some small unions, talks continue with three large unions at it

Norte division, responsible for about 70% of Codelco's output. Still, if there is a labor disruption, it presumably would occur and be resolved early in the year, some said. "I think we will have some labor issues to deal with," said Jon Bergtheil, global metals strategist with J.P. Morgan, about 2007. "But we're definitely past the peak with the larger mines. "We shouldn't see anything like the amount of disruptions that we saw in '06. Most of these contracts are for longer than a year." He estimated that labor-related supply disruptions to the copper market may be only "about quarter to a third" of what occurred in 2006. When talks do occur, union demands may not be as great as they might have been if copper prices had not fallen back from last spring's highs, said Bergtheil. "I don't expect the same level of labor issues next year as this year," said Robin Bhar, base-metals strategist with UBS. "I don't think there is the same number of contract renewals next year as there has been this year." More importantly, not as much capacity will be at risk in the key producing nation of Chile. "You have the Codelco Norte division negotiating at the end of the year and early next year, but that will be it," said Bhar. George Leaming, director of the Western Economic Analysis Center, said there appears to be less potential for compensation-related strikes in 2007 than in 2006. However, he cautioned that the labor outlook is nevertheless "a cloudy picture" since often political issues - both government and union leadership - dictate whether workers strike in other countries.
"The United States is pretty clear," he said. "There is not likely to be (major strikes). "But in Chile, Mexico and even Indonesia, the situations are highly political. They can come right out of left field or right field without anybody seeing them coming....It's subject to political winds, which can blow one way or the other,
or not at all, at any given time." In particular, he said, it remains to be seen how the opposition will respond
to Mexican President Felipe Calderon, who was narrowly elected in July and inaugurated Dec. 1, Leaming said there is little likelihood of major strikes in the southwestern U.S., since Phelps Dodge and BHP operations are non-union. "I think Asarco has pretty well got its labor troubles behind it," said Leaming. "They are more wrestling with the bankruptcy court." A lengthy strike occurred against Asarco in 2005, before the expired agreement was essentially extended to the end of 2006 on the same terms as the old one.
Leaming said he anticipates a similar outcome this time around. "It seems to me that would be the logical thing to do -- just keep it going," he said. "Basically, that's all they did before after a five-month strike."

Some Strike Potential Does Exist As Copper Prices Remain High


Still, analysts say there is some potential for strikes, even compensation-related ones. "You could have unforeseen go-slows and wildcat strikes because workers demand more of the share of the revenue that these companies are going to be getting from a still-high copper price," Bhar said. "It's one of the things you can't forecast."
Man Financial analyst Edward Meir said labor talks that do occur potentially could be "pretty contentious," particularly since copper prices remain historically high.
"This will embolden the unions to stick to their guns," he said. "As a case in point, we haven't seen anything come out of the Codelco Norte talks yet. Everybody had thought that would wrap up quickly, but they're still talking." There is even potential for workers in some parts of the world to seek better terms even when they already have a negotiated contract, said Bhar. "It could also be, as we've seen this year in Zambia at some of the copper facilities there, some protesters going on strike demanding a one-off (one-time) copper bonus," Bhar said. Unions could have good clout if they undertake go-slow strategies or stage wildcat strikes, he said. "They have a lot of power, because by going slow or having wildcat strikes, they can see the company lose a lot of production. It might only be a few days, but at $7,000 to $8,000 a ton, that will be a lot of dollars that will be lost (for mining companies)."


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