JAKARTA, July 6 (Reuters) – A strike for higher pay has
paralysed production at Freeport McMoRan Copper & Gold’s
mine in Indonesia, which holds the world’s biggest gold reserves
and is one of the largest copper producers, workers said on
The strike, which was in its third day, highlights the
rising labour costs for businesses in booming emerging markets
such as Indonesia, and if it continues for a week as planned,
will raise the prospect the U.S. miner might have to halt
shipments in a force majeure.
A contract worker, who declined to be identified, said
mining operations have been completely halted because most
workers have left the Grasberg mine site that is 4,000 metres
above sea level, as well as their barracks 1,000 metres lower.
“All our friends have gone down, so definitely working
activities are non-existent, and what can be done up there is
just the processing of ores that have been dug up before the
strike,” the worker told Reuters by telephone.
Copper prices in London fell on Wednesday, after
China raised interest rates for the third time this year, but
were supported by the supply disruption in Indonesia as well as
in Chile, where severe winter weather has hit output at a top
mine and state workers are also planning a strike on July 11.
“I think the supply disruption at the Freeport Grasberg mine
is positive for copper markets in the short-term but the
influence may not extend further, especially if the strike does
not drag on for too long,” said Zhuo Gui Qiu, analyst at
Minmetals Futures Co in Shenzhen.
WORSENING ORE QUALITY
The mine is already facing a 17 percent decline this year in
production of copper, used for electronic wiring and ending up
in mobile phones and televisions, because of worsening ore
quality, with the strike likely to exacerbate the drop, said
MineLife analyst Gavin Wendt.
Freeport has so far only said that concentrate shipments
have not been affected, though has declined to comment on
whether operations and production has been disrupted.
Analysts said any force majeure, enabling Freeport to halt
contract shipments to buyers, would depend on the level of
stocks the U.S. mining firm maintained at the remote mountain
“You may not see a force majeure unless it continues over a
week,” said UK-based VM Group analyst Carl Firman. “Generally
mines have built into their mine plans a certain buffer of
stocks, and I’d imagine they will work those down first so they
can keep shipments and contracts secure.”
There are around 8,000 mine workers taking part in the
strike. Workers earning $1.50 per hour are pushing for higher
wages, since their union says other Freeport workers around the
world earn over ten times that amount.
The salary is in line with average wages last year of about
$230 a month in the eastern Papua province, the country’s
statistics bureau said, though wage inflation has been spurred
by over 6 percent growth in Southeast Asia’s top economy and by
record commodity prices this year.
Gold prices edged lower on Wednesday, also after the
Chinese rate hike, with the precious metal driven more by
investor flows and global risk sentiment, and less affected by
short-term supply interruptions than copper. Both metals hit
record prices earlier this year.
The union and Freeport have called for negotiations over pay
but there were no signs of progress so far over a strike that
the firm has called illegal.