Workers at Freeport McMoRan Copper & Gold's Grasberg mine in Indonesia plan to stage a strike in coming days after talks with the company failed to resolve a pay dispute , a move that could tighten global copper supplies and lift prices.
A strike would be the second in two months at Grasberg, the world's third biggest copper mine that also has the biggest gold reserves, after an eight-day stoppage in July caused production losses and helped push copper prices to three-month highs.
The worker union's deadline for a pay deal was Friday, though a Freeport spokesman said the U.S. firm still hoped to extend the talks to avoid another strike.
The talks are deadlocked. The gap between what we wanted and what the company offered was enormous. They think a bonus is considered a rise, for us a pay rise is a pay rise, union official Virgo Solossa told Reuters.
It was not clear exactly when a strike would start or how long it would last. The firm says the July strike by 8,000 workers halted ore shipments and caused a production loss of 60,000 ounces of gold and 35 million pounds (15,876 tonnes) of copper.
It is one of the biggest mines in the world and the market is tight since we are in a deficit situation. I think anything that can exacerbate that tightness will give copper a big turn, said David Thurtell, metals analyst at Citigroup.
The Grasberg strike can be potentially more serious as there is no indication on how long it would last.
Copper prices eased on Friday, after surging to the highest in almost three weeks in the previous session, as investors remained cautious on worries over the global economy.
Copper prices, trading at just above $9,000 a tonne, have fallen around 12 percent from a record high of $10,190 hit in mid-February. But prices are still more than triple their troughs reached during the 2008 global financial crisis.
The pay dispute and strike threat at Grasberg comes as a prolonged strike at Chile's Escondida copper mine, the world's biggest, is seen pushing a global shortfall of copper concentrate deeper into deficit this year.
Grasberg workers returned to the remote mountain mine in Papua after the firm agreed to bring forward pay talks that had been scheduled for later this year and to not penalise union leaders. But the key issue of pay level was left unresolved.
I would think that Freeport would want to negotiate this quickly because this is really their only asset. Single-asset companies are vulnerable to any downtime so I think they'll look to address this quickly, said Mark Pervan, senior commodity analyst at Australia and New Zealand Bank.
Freeport has offered workers a 10 percent pay rise in the coming year and another 10 percent for the following year, according to a company source, who declined to be indentified because the talks were not public.
The management has offered a better pay rise than other mining firms in the country, said the company source. The union had demanded a rise using the labour market standard in North America instead of the labour market in Indonesia.
Indonesia's economy, the biggest in Southeast Asia, is powering along at over six percent growth this year, driven by resource exports and buoyant consumer demand, though the Papua region is among the poorest in the sprawling archipelago.
It's no surprise that they are staging another strike. These industrial situations usually don't get resolved easily, said MineLife analyst Gavin Wendt. If the supply side is affected by industrial action, we are definitely going to see a significant upward move in copper prices.