Production and shipments ground to a halt at Freeport McMoRan's Grasberg copper mine in Indonesia after thousands of workers began a month-long strike on Thursday, stoking fears of a global shortage following similar action at a major Peruvian mine.

Activity at Grasberg, the world's third-biggest copper mine which also has the world's largest gold reserves, has been paralysed while concentrate shipments have been halted by the strike over pay, union spokesman Juli Parorrongan told Reuters by telephone.

There is no activity at the mill, the underground mine, the open pit mine except for maintenance. Mining activities have been completely paralysed. This goes for the port as well, Parorrongan said.

Strikes could increase the volatility of copper prices, which have fallen nearly 15 percent from a record high in February, after workers at Freeport's Cerro Verde copper mine started an indefinite strike on Wednesday.

Analysts said the stoppages are unlikely to have a long-term impact on commodity prices unless drawn out for months. A strike at Grasberg in July lasted eight days.

Strike actions tend to affect sentiment for a short period of time, but it rarely actually impacts the trade significantly in a way the market can see, said Tom Price, Global Commodity Analyst at UBS.

It takes two to three months for the concentrates from operations in South America or Indonesia to hit the market. In the meantime, there is a large scrap market to fill the supply gap.

LME copper gained 0.4 percent to $8,665 a tonne on Thursday, but has dropped more than 9 percent so far this year. Freeport share prices have fallen by nearly a third since hitting their highest this year in January.

Investor concerns are firmly focused on the gloomy global economic situation. The news we are getting from Europe and the U.S. is so bad that it is moderating any form of boost to copper's fundamentals, said CRU analyst Qu Yi.

MINING ACTIVITY PARALYSED

Virgo Solossa, another union official, said that three ships at Freeport Indonesia's port were not being loaded as workers at the Amamapare port in Papua also joined the strike. A Reuters witness saw only one worker at the Amamapare port.

All the night crew have put down their equipment, parked their trucks, and left all activities in the mine. We are all returning to our barracks, Solossa told Reuters by telephone in the early hours of Thursday.

Freeport Indonesia's spokesman Ramdani Sirait said the company is assessing the impact on production and deliveries following the strike.

We are disappointed that union workers decided to implement an illegal work stoppage, he said in a statement.

Since the commencement of negotiations on July 20, 2011, PT-FI has negotiated in a diligent good faith manner with union representatives to reach a mutually satisfactory agreement on the extension of its Collective Labor Agreement.

COPPER LOSSES

Grasberg produced 544,311 tonnes of copper and 1.8 million ounces of gold in 2010, the Freeport website shows, around 3.8 percent of world copper output.

Based on 2010 production a month-long strike would cost around 45,000 tonnes of lost copper output, adding to an expected 2011 deficit of 343,150 tonnes forecast in a Reuters poll of analysts in July.

The Indonesian strike, if it lasts, is likely to be more costly for Freeport than the one in July, when the firm said it suffered a production loss of 35 million pounds (15,876 tonnes) of copper and 60,000 ounces of gold.

Those on strike include sub-contractors involved in port operations and at mining-related power plants, he said.

The company's union in Indonesia, which represents about 8,000 workers, has demanded a pay rise to between $17.5 to $43 per hour, down from initial demands for $30 to $200 per hour, but still above a current $1.5 to $3 per hour rate.

The union has said that other Freeport workers worldwide get 10 times their current level.

The strike in Indonesia comes one day after workers in Freeport's Peru copper mine Cerro Verde launched similar action for better pay and benefits.

Production at Cerro Verde, which churns out 2 percent of the world's copper supply, had not been materially affected by the work stoppage, company and union spokesmen said on Wednesday.

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