BHP (NYSE:BHP) has successfully negotiated a new deal with the union at Chile's Escondida copper mine. This agreement comes after a brief but impactful strike that began over a pay dispute. The union demanded a bonus equivalent to 1% of shareholder dividends—around $35,000 per worker at the largest copper mine in the world.

BHP initially offered $28,900, but as tensions escalated, the company upped the offer to around $32,000 and an additional $2,000 in soft loans. The new deal includes key changes to labor conditions, such as optimizing shift changes, increasing equipment utilization, and complying with the Chilean 40-hour workweek law.

Copper prices had spiked during the strike but fell by 0.7% to $9,081 per metric ton once the agreement was announced. The price remains far below the peak of $10,597 per metric ton in May.

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Escondida is crucial in global copper production, as the last strike in 2017 sank the global copper supply by 7.5% that year. As over 60% of its copper concentrates end up in Chinese smelters, the potential crisis in Chinese copper production has been averted, ensuring copper market stability.

Still, diversification away from Chinese production remains a concern. The top five global copper refineries are all located in China, with a total capacity of over 3.6 million metric tons. According to the analytic firm Wood Mackenzie, any significant diversification away from Chinese copper processing would have far-reaching implications.

Removing China from the copper supply chain would create an $85 billion gap, a near-impossible challenge for Western economies to fill. As global demand for copper is expected to rise by as much as 75% by 2050, meeting this demand without China would require substantial new investments in smelting and refining capacity.

Earlier this year, Rio Tinto's Copper Boss Bold Baatar pointed out that there are over 60 Chinese copper smelters, but only four in North America—two in the U.S., one in Canada, and one in Mexico.

"The smelting market is not Americas-based. What we have to be really clear on is what's happening in China in the concentrate market. There's been a rapid acceleration of smelting capacity there," Baatar said, per Fastmarkets report.

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Image created using artificial intelligence via Midjourney.