High metal prices allow mine workers to drive a harder bargain
October 10, 2004
By Jae Hur
London - The global metals industry is heading for tougher labour negotiations in the coming years as contracts expire at a time of higher metals prices but rising costs, analysts say.
Strong demand and tight supply after years of underinvestment in new production have pushed most metals up to multiyear highs and have sent mining shares higher, attracting an influx of investment fund money into the sector.
Labour disputes "became more common in the last year or two and they are likely to be an issue for the rest of this year and next year", said Stephen Briggs, an analyst at SG Corporate and Investment Banking.
"Further strikes are quite possible," Briggs said, noting that unionised workers tended to demand higher wages following higher prices for industrial metals. "In the past, supply was lost because of a strike and those strikes become more common when prices are high," he said.
"That is one of the reasons why this major bull market carries on. That's what we saw in the late 1980s."
Jim Lennon, an analyst at Macquarie Bank, said: "Given dwindling global inventories, any disruption by labour disputes, operational problems in outdated facilities or delays of new mining projects would cause a hiccup in the supply channel."
However, mining companies were not keen to give too much away due to other rising costs, including raw materials, energy and freight, as well as volatile metal prices, analysts said.
"The mining industry knows metal prices go in cycles," Briggs said. "High prices do not just reflect the state of the market today. They also anticipate the state of tomorrow."
On Thursday, copper on the London Metal Exchange neared 10-year highs, zinc jumped to its highest in four years, aluminium hit a nine-year peak and lead set a high unseen since it was denominated in dollars in the early 1990s.
Early this year gold, nickel and tin struck their highest levels in about 15 years, while platinum scored a 24-year peak.
Investment bank Barclays Capital said in August that mining union officials were using high metal prices, revenues and share prices to argue aggressively for sizeable wage increases for their members.
But analysts said most labour disputes were expected to have a limited effect on the market due to a decrease in union membership and the fact that most stoppages tended to be isolated.
A labour dispute could have "only a temporary impact on the market", said Man Financial analyst Edward Meir. "But it depends on commodity, metal, the size of producer being hit and the length of the strike."
Current labour situations were different from those in the 1970s, when miners went on strike in Britain with sympathy actions by truck drivers and electricity workers, Meir said.
Now "it's an independent strike. It's usually facility to facility ... not company-wide."
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