Copper price rises as strike goes on at BHP's Chile mine

The price of copper jumped more than 2 per cent yesterday after striking workers at the world's largest metals mine rejected a new pay offer from BHP Billiton.

A metric tonne of copper rose by $160 to $7,640 (£84 to £4,030) by the end of trading on the London Metals Exchange, as the strike at the Escondida copper mine in Chile continued into its third week.

BHP Billiton, the Australia-based mining company, said it had improved the pay deal offered to 2,000 staff at Escondida over the weekend. Miners were offered pay increase of 4 percentage points above the rate of inflation - worth a little less than 8 per cent - plus one-off bonuses worth about $15,000 if they agreed to sign three-year contracts.

However, union officials, who have been seeking bonuses of $30,000 for longer contracts, plus pay increases of about 14 per cent - 10 per cent after the effects of inflation - were angered by reports that BHP will this week announce soaring profits and special dividends for shareholders.

Analysts expect BHP, which made $2.9bn in the first half of its financial year, to announce full-year profits of $10bn-$11bn. It is also expected to return of $3bn to investors, on top of buy-backs and dividends worth $6bn over the past five years.

The company has benefited from a quadrupling of the copper price over the past five years, with demand for the metal - used in infrastructure projects to make power cables and water pipes - soaring from countries such as China, with large industrial development programmes.

This year, the price of copper is up by about 75 per cent, as global demand has continued to rise. The Escondida mine is the world's single most crucial source of copper, accounting for 8 per cent of global supplies.

BHP, which co-owns the mine with Rio Tinto and a consortium of smaller companies, has managed to restore some production after initially being forced to shut down the mine. However, the company admits the mine is operating at between 40-60 per cent of normal capacity.

Analysts warned the upwards pressure on copper prices would continue until BHP, which has warned it needs to reduce costs, agreed a deal with its workforce.

"There's an immediate impact on copper prices because it adds speculation in a market with tight supply," said Enrique Alvarez, a Latin American debt analyst at Ideaglobal.

Demand for copper is expected to outstrip supply this year. A report produced last month by the investment bank UBS, published before the Escondida dispute began, warned demand would exceed production by about 200,000 tonnes in 2006.