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A breaking news came from the trillion-dollar giant BHP Billiton!

On July 29, it was reported that the union at Chile's Escondida copper mine urged its nearly 2,400 members to reject contract offers and prepare for a strike.

BHP Billiton holds a 57.5% stake in Escondida Copper Mine. Influenced by the above news, BHP Billiton's stock price fell by 1.5% during the US stock market on the 29th, and finally closed down by 0.67%, with its market value shrinking to US$139.5 billion, equivalent to about RMB 1 trillion.

Escondida is the world's largest copper mine. In 2017, more than 2,300 union members participated in a 44-day strike, pushing up global copper prices. If another major strike occurs, it may affect the global copper supply and push copper prices higher.

Biggest copper mine or strike

The union at mining giant BHP Billiton's Escondida mine in Chile, the world's largest copper mine, has called on its nearly 2,400 members to reject the company's final contract offer and prepare for a strike.

According to Reuters on the 29th, Patricio Tapia, president of the Escondida copper mine union, said that workers will vote from Monday to Thursday. Previously, there was no report on the union's position on the contract proposal. If workers reject the deal, the strike may begin immediately. But Chilean legislation allows either party to ask the government for mediation for five days, which can be extended for another five days if both parties agree.

Patricio Tapia said that if union members go on strike, the company will not be able to produce copper because the law prohibits the replacement of workers, and the union represents 98.5% of Escondida's front-line operating workers. Back in 2017, more than 2,300 union members participated in a 44-day strike at the Escondida copper mine, which damaged its production and pushed up global copper prices.

"We are much better prepared (for a strike) than before," Tapia said. "We have a large strike logistics fund, four times the size of 2017. We have also signed a credit agreement to meet the basic needs of workers and their families in the long term." Patricio Tapia said workers are proposing they receive an amount equal to 1% of shareholder dividends, which will be paid over the three-year term of the new contract. Patricio Tapia said: "We have the right to expect that the company's profits will be shared with the workers." He added that record copper prices have made Escondida a "great business."

BHP said its offer would increase benefits and add new ones. "With this latest offer, the company hopes to reach a new agreement that recognizes the contributions of workers and enables us to move forward in a sustainable way in the face of the challenges at Escondida," the company said in a statement.

According to public information, the Escondida copper mine is located in the Atacama Desert in northern Chile. It was discovered in March 1981, with proven ore reserves of 2.118 billion tons, copper metal reserves of 32.49 million tons, and a copper grade of 1.31%. According to the results of the 1997 survey, the Escondida North deposit was discovered 5,000 meters north of the mining area of ​​the deposit, with copper reserves of 12.95 million tons and an average copper grade of 0.88%. The Escondida copper mine was put into production in 1990. After several expansions, its annual copper production has exceeded 1 million tons, making it the world's largest copper mine. In fiscal year 2023 (as of the end of June 2023), the copper production of the Escondida copper mine increased by 5% year-on-year to 1.055 million tons, mainly due to the increase in the feed grade of the concentrator to 0.82% (0.78% in fiscal year 2022).

Currently, Escondida is operated by BHP Billiton, which holds a 57.5% stake in the mine. The joint venture partners include Rio Tinto with a 30% stake and Japan's JECO Corp with a 12.5% ​​stake. The Escondida mine has two mines, three concentrators and two heap leaching facilities (oxide and sulfide). The mine is an important part of the Chilean economy, accounting for several percentage points of Chile's GDP.

How will copper prices go?

Due to the tight supply of copper mines and the expectation of rising demand for copper, copper prices experienced a crazy bull market from mid-February to mid-May this year. LME copper futures soared from $8,100 per ton to a record high of $11,104.5 per ton on May 21.

However, copper prices have since fallen back from their highs and have fallen nearly 20% since reaching a record high in mid-May. Investors had previously bet on a surge in the use of data centers and related power infrastructure, and therefore bought a large amount of copper. However, with the recent sharp drop in global technology stocks, the market has raised questions about the strength of the artificial intelligence industry.

From a fundamental perspective, Guangzhou Futures pointed out that the recent increase in LME copper inventories has brought certain downward pressure on prices. As of July 26, LME inventories were 238,000 tons, nearly doubling from about 120,000 tons in early June. Domestic refined copper production in June remained high, and short-term market supply is still loose. Spot copper TC has slowly recovered, but it is still at a low level. The medium-term smelting supply may still face great challenges, and we will continue to pay attention to the production dynamics of smelters. The current price has stabilized after accelerating the decline, but whether it can really rebound still needs to observe the guidance of more economic data. In the short term, it is likely to remain volatile, and we will pay attention to the Federal Reserve's interest rate meeting and the US ISM manufacturing data.

Guojin Securities pointed out that copper prices continued to fall in the first half of the week, mainly due to concerns about demand. The US S&P Global Manufacturing PMI fell to 49.5 in July; my country's unwrought copper and copper products exports in June were 233,300 tons, up 186.8% year-on-year and 56% month-on-month, and overseas stocks are expected to continue to accumulate. The US real GDP in the second quarter announced last Thursday night was 2.8%, higher than expected and the previous value, easing pessimism about demand; State Grid's investment this year will exceed 600 billion yuan for the first time, an increase of 7.1 billion yuan year-on-year, and 300 billion yuan of ultra-long-term special treasury bonds will support equipment renewal and consumer goods replacement, jointly boosting demand expectations and copper prices rebounding. After the copper price fell, the improvement in domestic demand and the tightness of the raw material side will support the copper price, and attention will be paid to the quality of demand in the peak season. Against the background of the strengthening of the tightening expectations on the mine side in the second half of the year and the weakening contribution of recycled copper increments, it is expected that the central price of copper in the fourth quarter will move up.

Everbright Futures said that in July, the macro sentiment had a great impact, and since the copper price was still high at the beginning of the month, it can be said that the macro expectation and reality were both weak, so it was not surprising that the copper price continued to give back. As of now, the copper price has given back most of the gains since March, which also means that the copper price is close to the end of "squeezing out water". Whether it will continue to give back the gains in the first quarter in August is worth discussing. From the perspective of fundamentals, this probability is low. First, there is a certain rationality in the rise in the first quarter, that is, the fundamentals are mainly due to the tight situation of copper concentrate, which has not been effectively solved. Second, as the copper price goes down, the demand for copper is also slowly recovering, and the speed of destocking in domestic social inventory is also accelerating. From a macro perspective, whether it is pricing the US economic recession or the disturbance caused by the sudden unexpected election, it is reflected on the market, so the focus is on whether there are more sudden or unexpected macro risk events. In August, the macro may enter a period of balance or calm. Therefore, the copper price has been adjusted in place in stages, and the probability of a shock rebound in the later period will increase.

Editor: Tactical Heng

Proofreading: Yang Shuxin

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