Mining strike in southern Peru to force contract breaches with exports being halted, effects on sector

On 22 October 2018, Shougang Hierro Perú (SHP) declared force majeure regarding its mineral export contracts. SHP is a Chinese-owned firm operating an iron ore mine in the Marcona district of Nazca province in southern Peru's Ica department. It produced 8.8 million metric tons of iron in 2017. Its move reflects an indefinite strike by SHP workers since 10 October, demanding wage increases and better working conditions. So far, SHP's mining activities have not been affected significantly, according to IHS Markit sources, but force majeure was declared as important staff involved in export activities and business administration are among some of the 800 workers striking.

Significance: Shougang operates the only iron mine in Peru. IHS Markit anticipates that the national government is likely to intervene to facilitate an agreement between the company and its workers. The authorities are highly sensitive to blockages and contract breaches affecting mineral exports: these represent 60% of Peru's foreign-exchange earnings. If government intervention is successful, iron exports are likely to resume within two weeks unless protests escalate. There are adverse precedents in this regard. In a similar protest in May 2016, one person was shot dead and several injured, including three with gunshot wounds, after police confronted workers to clear roadblocks. A strong security presence should discourage violence this time, and unlike protests related to environmental issues, labour disputes rarely generate large-scale violence or property damage. Failure to reach a deal within three weeks would indicate increased risk of escalation and violent protests. In this scenario, if locals stage roadblocks this would indicate greater risk of damage to property. If security forces clear the roads forcibly, with confrontations between police and demonstrators, protesters would be more likely to target company offices, warehouses, and company equipment and vehicles located outside the mine's security perimeter, with resulting risk of damage to corporate assets. It is important to note that this labour dispute is highly unlikely to spread to other firms within Peru's mining sector, limiting the overall economic impact.