The strike at Freeport McMoRan Copper & Gold's Grasberg coincides with bad weather that has hurt output at copper mines in major producer Chile, straining supplies and pushing prices of the key industrial metal to their highest in more than two months on Thursday.
Workers at the Grasberg mine, which has the world's biggest recoverable copper reserves and largest gold reserves, abandoned the remote mountain site when the seven-day strike started on Monday and said production has been paralysed.
The company has said that shipments of copper concentrate have not been affected so far. But analysts say the longer the dispute lasts the more likely Freeport is to declare force majeure -- a move that frees it from contractual obligations due to events beyond its control.
"Combined with the other supply disruptions that are going on at the moment, it's helping to be a very timely reminder to the market about how vulnerable growth this year is for copper," said London-based analyst Gayle Berry of Barclays Capital.
"The longer that it goes on, the bigger the risk is that force majeure is called, but it really is a question of how much inventory they have at the mine."
Union official Virgo Solossa said it plans to meet Armando Mahler, CEO of Freeport Indonesia, for further negotiations on Friday, after talks on higher pay broke down on Wednesday.
"If the demand from the union is not granted, we will extend our strike one more week," Solossa told Reuters, without revealing the pay demands by 8,000 mine workers.
Solossa said that the strike would also stop concentrate shipments since there would not be sufficient material for shipping.
In London, traders said they would not expect a force majeure sooner than in 10 days from the start of the strike.
"They will have some back up concentrate around one or two parcels," said one physical copper trader.
"There's probably a little bit of credibility behind it (in)that the stocks are not as big as they normally are they are mining a lot of low grade ore at the moment.
"(But) I think that's very doubtful that they've been on strike for three days and now everything is just going to disappear."
In Chile, workers at Codelco's top two operations, Chuquicamata and El Teniente, agreed plans to strike for 24 hours next Monday to protest against an overhaul of the country's giant state mining company.
Together with diminishing output at older mines and a cold snap that has curtailed production at other mines in Chile, which produces a third of the world's copper, worries over the labour dissent are pushing prices back towards a record over $10,000 a tonne hit in February.
Three-month copper on the London Metal Exchange rose 2.3 percent to $9,742 a tonne by 1600 GMT, after touching a peak of $9,758 -- the highest since April 12.
At Grasberg, thousands of workers left the open pit mine at at the start of the week and marched to Freeport's offices in eastern Papua province, as they push for more than $1.50 an hour. The union says other Freeport workers around the world get ten times that.
Dionisius Mameyau, the head of the government's local manpower office, said Freeport management had admitted in a meeting with the union that production had completely stopped.
He estimated the US miner would be losing 200 billion rupiah ($23.4 million) a day due to the strike. This is roughly the same as it would cost to double the wages of 8,000 workers earning $1.50 a day for one year.
Freeport made $1.5 billion in profit in the first quarter alone.
Copper from Grasberg is used for electronic wiring and ends up in smartphones around the world, but few residents of Papua, a heavily forested and mountainous province where new animal species are still being discovered, can afford such phones.
The strike highlights the rising labour costs for businesses in booming emerging markets such as Indonesia, Southeast Asia's top economy that is seeing growth of more than six percent this Reuters
The Freeport mine is a major contributor to tax revenues for the central government, which has come under criticism from rights groups for heavy policing of Papua to quell a simmering separatist movement over the province's mineral resources.
A police official who is the commander of Freeport's security said about 635 personnel was deployed to guard the 100 square km operational area.
"For the mills and Grasberg, maintenance remains in operation because it has to be done, but other activities are still paralysed," Jermias Rontini told Reuters by telephone.
Three soldiers were shot and wounded by separatist gunmen on Wednesday in another district of Papua, the second such attack there in two weeks, the army and an official at the Free Papua Organisation told the Jakarta Globe newspaper.
Copyright Reuters, 2011