Future earnings for Australia’s copper giants – BHP and Rio Tinto – are being threatened on several fronts as world prices hit new all-time highs.
Media reports say BHP is facing a strike threat at its two mines in Chile, Spence and Chilean parliament is looking to pass laws boosting taxes on copper earnings to 80% by 2024, a move that could see mines shut and there’s continuing market talk a million tonnes or more of copper concentrates are overhanging the market since China started refusing to take them last November.
The news could help push global copper prices higher in coming weeks because of uncertainty of supply from Chile, the world’s biggest producer.
Some analysts say one of the issues (both are in Chile, the world’s biggest producers) has already helped pushed prices higher in the past three sessions.
Tuesday saw three-month copper on the London Metal Exchange (LME) rise 0.8% to $US10,465 a tonne after a volatile session on Monday, when it touched a record high of US10,747.50 a tonne before retreating to close in the red with a small loss from Friday’s close.
In New York, Comex copper settled at $US4.7620 a pound after touching an all time high of $US4.8020 in trading. The front month opened at $US4.80 a pound on Tuesday. Comex copper has risen 10% in the past year.
Union members at BHP’s Escondida and Spence copper mines in Chile are set to vote on a strike after contract negotiations hit a dead end, the union group indicated in a statement late last week, according to Reuters reports.
The 205 workers run the company’s Integrated Operations Centre (IOC), based in the country’s capital Santiago, from where they manage mining pits, as well as cathode and concentrator plants at the mines in Chile’s north.
When IOC was created in 2019, BHP fired dozens of workers in charge of control rooms to later rehire them with lower conditions and benefits, the union alleges.
In April, those employees began negotiating with BHP to improve current working terms. Those talks are currently stalled.
If a strike is called Chilean labour laws require both parties to undergo government-led mediation for five to 10 days.
Meanwhile Chile’s lower house on Thursday last Thursday legislation that would introduce progressive taxes on copper sales, potentially creating a total burden of more than 70% — or almost double that of other major copper-producing nations.
The measure, which would go into effect in 2024, still needs to be approved by the senate and could be blocked by the government in court.
But if it succeeds, it could stall investments in a country where mature low-grade deposits need plenty of expenditure just to maintain output levels of about 5.7 million tonnes a year.
Codelco, the state-owned copper mining giant is spending billions of dollars over 10 years or more to revitalise its suite of mines in the country that make it the world’s largest producer.
Coldeco reported net profits of $US1.63 billion in the three months to March, thanks to the surge in world copper prices.
Likewise BHP and Rio have been spending billions keeping Escondida viable when prices were much lower than the record levels now.
“This would at the very least delay any new capacity, extending the lengthy time-line to bring on a new mine,” said Grant Sporre, an analyst at Bloomberg Intelligence said last week. “Chile’s output could start to fade to 5 million tonnes.”
Meanwhile China is facing paying more for its imports of copper ore and concentrates because of the rising world prices and nthe ban on using Australian copper concentrates.
China’s copper imports fell in April from the previous month, according to customs data released Friday.
Some manufacturers and end-users have been slowing production or pushing back delivery times after costs surged, but some of the problems are self-inflicted.
Media and industry reports say China has stopped more than a million tonnes of copper concentrates from being landed in the country since last November as part of the country’s ‘punishment’ of Australia for daring to support an inquiry into China’s version of how Covid started.
Wine, timber, barley and seafood imports from Australia have been banned, along with coal – the moves have helped boost the global prices of these commodities, especially copper.
Mining explained the impact the Chinese ban is having on their own smelters.
Treatment and refining charges (TC/RCs) are paid by miners to smelters to process concentrates into refined metal and they rise when copper is in oversupply and fall when smelters are forced to compete for scarce material as they are doing currently because of a shortage.
“TC/RCs fell to a historically low level of just over $20 a tonne last month compared to more than $70 a tonne in June last year and spikes as high as $130 in the previous decade.”
“Wood Mackenzie research director Gillian Moncur said Thursday that Chinese smelters remain closed to concentrates from Australia, compared to a peak of 108,000 tonnes in June last year.
“We estimate that the annual volume impacted is around 1.0 Mtpa of copper concentrate, which is looking for homes in other Asia Pacific smelters. “This has resulted in China looking for concentrates from elsewhere, at a time when the market was very tight due to weather related issues, deferring shipments and other factors,” she was quoted by Reuters.
The Australian market hasn’t yet focused on the potential dangers to BHP and Rio from the issues in Chile. Australian investors are more focused (rightly) on iron ore prices and what is happening in the huge Chinese steel market.
Wednesday saw BHP and Rio shares ease – the former lost 0.5% to $51 and the latter suffered a 0.4% dip to $130.04.
