Updated from 11: 52 a.m. EDTA possible supply interruption, thin volumes and hedge-fund buying helped copper prices surge over 6% to $3.62 a pound Thursday in trading at the Comex division of the New York Mercantile Exchange. Traders are closely monitoring the situation at BHP ( BHP), which faces the threat of a possible supply interruption at its massive Chilean Escondida copper mine. Union workers at the facility are currently engaged in a go-slow-style industrial action, having rejected a recent pay offer from management. Any outages would likely send copper prices even higher. "A strike is not a desirable scenario," says Tracy Whitehead, a spokeswoman for BHP in London. Shares of the multinational miner rose nearly 1% to $42.77 Other market observers note the strong underlying base of solid demand for copper and relatively scarce supply. "This price rally is as much driven by fundamentals as it is by fund buying," says Mo Ahmadzadeh, president of Mitsui Bussan Commodities, a futures trading company in New York. Lower trading volume on the London Metal Exchange is another possible factor aggravating the dramatic price rise, with June showing an average daily turnover of 1.75 million tons, or 16% below those in January. Lower volumes magnify the effect of buying interest in bidding up prices. Interestingly, the copper-price jump comes just one day after the release of a bearish report by giant producer Phelps Dodge ( PD) which forecasts lower prices for copper, nickel and zinc over the next two and a half years. Investors didn't seem to mind Phelp's pessimistic price forecast, as stock of the company was trading up 1.5% at $82 on the back of the spot price copper rally. The company announced Wednesday that it predicts copper prices will dip to approximately $6,300 a metric ton ($2.85) in 2006, before reaching $5,000 and $3,900 in 2007 and 2008, respectively. Phelps, which is bidding to take over Canadian nickel miners Inco ( N) and Falconbridge ( FAL), also predicts a softening nickel market. The company forecasts a price of $18,000 a ton ($8.25 a pound) for 2006, before falling further to $16,800 and $14,000 in 2007 and 2008, respectively. Spot prices for LME nickel closed above the $24,000 a ton level. Phelps also predicts that zinc prices could fall from current levels of $3,400 a ton ($1.53 a pound) to $2,400 over the same period. "I'd be the first to admit the current prices are unsustainable," says David Martin, an equity analyst with Deustche Bank. Although rising energy costs are a problem for metals producers, the rate of change seems to have slowed recently, and some companies are partially protected from it, he notes. In particular, Canadian aluminum producer Alcan ( AL) self-generates a substantial portion of its own energy, Martin observes. Electricity represents approximately 35% of the cost of aluminum production. And Martin estimates the company produces about half its own power, vs. 25% for others in the industry. Aluminum prices were trading up at around $2,500 ($1.15 a pound) on the LME, breaking a recent down streak. The general softness, says Martin, was due to concern over increased supply from China after raw-material prices fell earlier this year. That concern, he says, may be overdone, and he remains skeptical on talk of an additional 2 million tons of capacity reaching the market. He recommends clients buy stock in Alcan, which he says is a little cheaper in valuation terms than rival Alcoa ( AA). He adds the shares will benefit from lower marginal costs and better cash flow. Martin doesn't own Alcan or Alcoa stock; Deutsche Bank has done investment banking and nonbanking work for both companies, and it owns shares of the two companies. Precious metals were buoyed by the copper run as well as further threats of missile tests by North Korea. Comex gold for August delivery closed up $6.60 at $636.50 per ounce in Comex trading. The September silver contract closed up 17 cents at $11.59 per ounce. The bullion exchange-traded funds iShares COMEX Gold Trust ( IAU), streetTRACKS Gold Shares ( GLD) and iShares Silver Trust ( SLV) rallied in line with futures markets.