Codelco’s challenges escalate as workers reject contract offer

Workers at Chile’s copper producer Codelco, the world’s largest copper miner, have rejected the company's wage proposal presented during early collective contract negotiations, deferring union labour talks to October.

About 4,300 miners (or 51.2%) of El Teniente division turned down the contract offer, which in addition to base salary, included a bonus and soft loans (those offered at very low or zero interest rates) worth around $30,700. The union is asking for better long-term benefits and equal access for all workers to the company’s benefits regardless of when they joined.

Rough patch

El Teniente was the company's most productive deposit between January and September last year, mining 327,000 tonnes of red metal in the period. But Codelco is currently  facing tough times due to sinking copper prices, lack of cash and escalating costs.

The copper giant gives all its profits to the state and had been severely disappointed by the original amount of money it was returned.

As a result, Codelco decided last year to seek outside financing to implement its $27 billion investment plan for 2012-2016, and placed a $750 million bond in August.

Chile expects mining investment to reach $112 billion by 2021, figure that includes $27bn in projects planned by Codelco. By the same year, the country’s total copper production is projected to reach an annual 8.1 million metric tons.

As a back-up plan, the Chilean copper giant is exploring a more aggressive incursion in the silver market. Last November, CEO Thomas Keller said Codelco aims to become one of the world’s ten largest producer of the precious metal as soon as its touted Ministro Hales mine begins production later this year.

The nearly $3 billion copper-silver mine is expected to add 300 tons of the precious grey material to the existing silver output from the rest of Codelco’s operations in the country.

The firm owns about 11% of the world's copper reserves. The red metal accounts for 60% of the Chile's exports and 15% of its gross domestic product (GDP).

RBI tightens gold import norms under 80:20 scheme.

Seeking to restrict gold imports, the Reserve Bank today said nominated banks and agencies will not be allowed to import the precious metal in excess of their entitlements in first or second lot under the 80:20 scheme.

"Import of gold in the third lot onwards will be lesser of the two-- five times the export for which proof has been submitted or quantity of gold permitted to a nominated agency in the first or second lot," RBI said in a notification.

The government under the 80:20 scheme had in August 14, 2013, allowed nominated agencies to import gold on the condition that 20 per cent of the inward shipment will be exported. The permission to import the next lot would be given on fulfilment of export obligation.

In view of the representation being received by the RBI and the Finance Ministry, the central bank has said that the quantum of the third lot import would be five times the export from the previous lot subject to the condition that it would not exceed previous entitlements.

In case of advance authorisation (AA) and duty free authorisation (DFIA) for gold import issued before August 14, 2013, RBI said the 80:20 rule will not apply for units in Special Economic Zones (SEZs), Export Oriented Units (EoUs), Premier and Star Trading Houses.

"The imports made as part of the AA/DFIA scheme will be outside the purview of the 80:20 scheme. Such Imports will be accounted for separately and will not entitle the nominated agency/banks/entities for any further import," RBI said.

To contain rising gold import, which was 162 tonnes in May, the government had hiked import duty on gold thrice in 2013 taking it 10 per cent. Besides, the RBI also came out with certain restrictions, including the 80:20 scheme for imports. The gold imports came down to 19 tonnes in November. 

Japanese Candlestick Guide

Base metal demand to remain 'reasonably strong', says JP Morgan

In the research report published Friday, leading investment bank JP Morgan forecasts that the base metal demand from China should remain ‘reasonably strong’ in 2014, although down from 2013. The demand growth will be boosted by recovery in developed markets, says the research report.

JP Morgan estimates the global copper usage growth to decline to 5% in 2014 as compared with the 10% in 2013. Also, the global aluminum usage growth is expected to decline to 8.2% from 11.5%. According to the report, the global manufacturing sector may continue to grow with strong momentum. However, the Chinese base metal demand will remain lower when compared with 2013.

With regards to copper, the huge mine supply growth has lead to high stocks of copper concentrates in 2013. The conversion of these stocks to refined copper is the key. There are probably high chances that China may witness production ramp-up following the New-Year holidays.

Meantime, the copper inventory levels continued to wane in Europe. The copper stocks in LME-registered warehouses fell 2,225 mt on Friday to touch 308,025 mt. 

Also, Port Strike in Chile has considerably reduced the shipments, thereby keeping the premiums at reasonably higher levels.

DJ-UBS Commodity Index Is In Breakout Mode. Dollar Index To Struggle.

Let's take a look at the dollar/commodity correlation. It's no secret that the U.S. dollar index has an inverse correlation to the commodity markets. Figure 1 below shows that well. This reveals a monthly chart of the DJ-UBS Commodity index (in black) with an overlay of the U.S. dollar index (in red).

Despite widespread expectations, really for months now, that the U.S. dollar would rally strongly, the U.S. dollar index has been stymied be resistance at the 81.50 area. Meanwhile, the DJ-UBS commodity index has formed a double bottom reversal pattern (seen on the weekly chart) in Figure 2 below. The index is testing the breakout point right now and this will be an important zone to watch.

Bottom line? The U.S. dollar has struggled. Commodities, as an asset class, are trying to rally off a weekly double bottom, and gold has been one of the top five commodity performers of January. If the U.S. dollar index remains stymied by resistance in the 81.50 area and that weekly double bottom on the commodity index chart confirms—that would be bullish news for gold and commodities.

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