Wage talks crucial to base metal prices

Wage talks between workers and company managements are likely to determine the fate of base metals prices on the London Metal Exchange (LME). Meanwhile, wage contracts between unions and as many as 10 world's leading metal producers are expiring over the next one month and are currently under several stages of negotiation.

Successful talks may avert any possibility of strikes in mining and smelting units, resulting into smooth supply of metals and normal price movement. But, prices may move abnormally in case talks fail and plants go on strike.

Workers at Chile's Escondida copper mine have already slowed down their work as the wage contract is expiring in July and the company management has shown little interest in the new contract offer. Grupo Mexico's La Caridad copper mine has already been under strike since March this year and talks are scheduled on July 15. But, mine workers at the company's Cananea copper mine in Mexico have accepted the management's offer to end the six-week strike. 
 

BREAKING THE STALEMATE
Existing contract  expiry date	Company	Status
July 14	Escondida copper mine, Chile	Contract offer to be improved  otherwise slowdown in work
July 16	Cananea copper mine in Mexico	Six-week strike set to end
July 17	Ormet Corp's Hannibal  aluminium smelter, Ohio	To end 19-month strike
July 21	Tech Cominco Ltd's Highland  Valley copper mine, Canada	Talks set to resume mid-September
July 24	Escondida, Chile	Union seeks government's intervention
July 24	Antamina copper-zinc mine, Peru	18 pc wage hike likely to be expected in 7-week

But, the final rounds of talks are scheduled on July 16. Supplies of base metals, especially copper, are receiving fresh threat from mine workers in Chile, Peru and Mexico as they demand higher wages, arguing that increasing prices have boosted profits for mining companies, including Codelco, the world's biggest copper producer.

The strike threat helped copper prices soar from $6,190 a tonne on March 1 to $8,100 a tonne on July 10 amid declining inventories from 200,000 tonnes to 100,000 tonnes.

According to a report by Kotak Commodity Services (KCSL), factors other than the labour negotiations will also have a major impact on price movement. Copper was likely to remain upbeat as strikes in a number of mines across the world were imminent, the report further added.

The metals market had seen a lot of impact from expectations that rising interest rates in a number of economies would impact the demand side. The Chinese government has already signalled a tightening bias and its inclination to curb the overheating economy. However, restocking may begin as further buying from the Chinese markets may commence once the price declines even marginally.

Price movement cannot ignore the developments in China, the largest metals consumer in the world. The Chinese government's decision to rein in production by removing a tax rebate on shipments of aluminium rods and bars may result in the country importing more aluminium than it exports. This can lead to a significant shortfall in the metal's supply and may boost demand in the coming years. The Chinese government has already given a signal that it will not allow energy-intensive products to be made in excess capacity.

The KSCL report projected that aluminium was set get a sharp upside move in the coming months as economic activity rebounds after the end of the next quarter.

Setting the resistance level of $3,557 and a crucial support level at $3,200, zinc prices are likely to continue their upward movement, while the fate of nickel depends upon the labour talks expiring on August 1. As there has been no scheduled deadline for the talks, concerns are that the plant may go on strike if issues are not settled before the deadline.