In the shadow of the smelter smokestacks and the man-made slag mountain they call dump site No. 10, a convoy of cars, pickups and buses drives slowly down the sun-baked road into this mining town. Each day the line of men crossing the picket line gets a little longer.

At the main gate of the Phelps Dodge Corp. copper plant and along U.S. 666 stand scores of Arizona Department of Public Safety officers, helmeted and armed. A SWAT team waits atop the slag while National Guard helicopters circle above and riflemen cover the convoy from surrounding hills.

The handful of striking pickets, limited by a court order, are no match for the armed might of Arizona. They let the line pass.

Each day the strikers seem more dispirited. Talks in Phoenix drag on, and more workers cross the picket lines to one of the few jobs in Morenci.

Gabriel Nunez, 24, lost his Phelps Dodge job to his first cousin. Another man was replaced by his twin brother. There have been anonymous phone calls, broken windows, dented cars, wives and children sent away for safety. One 5-year-old boy seized his father's gun and told his horrified parents he was going out "to shoot the scabs."

Morenci is used to strikes. Workers call them "the shutdown," and they are as regular a part of the rhythm of life here as the blasting of copper ore from the bleak hillsides. But this year is different.

The copper strike is an example of the new bargaining climate in America. Financially beleaguered companies with their backs to the wall are demanding cutbacks in wages and benefits and are hiring workers to replace strikers. In industries as varied as airlines and timber, mining and transportation, unions are on the defensive.

Phelps Dodge, the second largest U.S. copper producer, has been hit hard by low prices and increasing competition from overseas, often by Third World countries with government subsidies and low labor costs. Last year, Phelps Dodge reported a loss of $74.3 million.

"The major difference this year," said John L. Bolles, the company's manager in Morenci, "is that Phelps Dodge is probably in a more difficult financial situation than ever before in its history.

"Copper has been badly depressed for the last several years," Bolles said. "Production costs have spiraled and consequently we must make it go now. We couldn't take on another three years of contract which we believed would make our operating costs excessive."

At issue in the negotiations in Phoenix is the unions' insistence on keeping their automatic cost-of-living raises and the company's reduction in starting salaries to about $21,700 for new workers and cuts in fringe benefits like free medical care.

The other problem, the strikers argue, is that accepting the company's terms would mean an end to an industry tradition--won in a long and bitter strike in 1967--of pattern bargaining, using the first contract settlement of the year to set nationwide terms for subsequent agreements. Kennecott settled peacefully three months ago, combining a wage freeze with a cost-of-living adjustment, and was followed by other copper companies.

But unlike some of its rivals in the field, Phelps Dodge has only copper. Kennecott, the biggest American producer, is a unit of Standard Oil of Ohio. Other companies that are part of larger conglomerates can cover their copper losses with profits from a range of commodities.

Morenci is a company town. The impressive Spanish-style facade of the Phelps Dodge Mercantile Store, with its easy credit for employes, lines the main street. The only motel, the hospital, school, theater, library, social club and most of the houses all exist thanks to Phelps Dodge.

It is a quiet, introspective kind of place, and people here have found it painful to adjust to the unwelcome attention of the media and the highly visible presence of hundreds of state troopers sent in by Gov. Bruce Babbitt to preserve the peace and keep the mine open.

And they are shattered by the strife Phelps Dodge has brought to their once close-knit community. Father has turned against son, brother against brother, even husband against wife in a conflict almost as old as capitalism itself: the right to work against the right to strike.

"This strike has divided people here more than any previous one," said Pastor John Bardon of the Catholic Church of the Sacred Heart in neighboring Clifton. "There are irreparable divisions, a lot of really deep hurts."

"This is a good town," one union veteran said. "You never used to lock the door of your house. You break down and a couple of dozen people stop to pick you up. Nowadays . . . ," his voice trailed off into silence.

Eleven days ago the men who crossed the picket lines to work at Phelps Dodge were spat at and cursed by more than a thousand club- and chain-carrying strikers who threatened to overcome the few guards and occupy the plant. It was a close thing until the company agreed "with a gun at its head" to shut down for a 10-day moratorium.

When the plant reopened last Saturday, the balance of forces had changed.

Phelps Dodge, backed by the state of Arizona, is playing tough in other ways, too. Ninety employes have been dismissed. The same number of eviction orders was being sent today to renters of company homes. Warrants have been served on about 20 people accused of strike-related violence.

Phelps Dodge, the strikers insist, is out to break the union.

"You'd have to have been in a cave in Tibet for the past 10 years not to know that they're into union busting," said Ray Isner, a chief steward for Operating Engineers Local 428. "This has been in the works for years."

Phelps Dodge denies this, but company officials say that if getting a contract means the end of organized labor here, then so be it.

"I think that the unions will lose considerable strength and face as a result of this," Bolles said carefully.

Fourteen hundred daily wage workers are needed to keep the Morenci plant at full operating capacity. About 540 people, either strikebreakers or new employes, were working today. It is only a matter of time, company officials said, before another few hundred turn up, contract or no contract.

"I've got to support my kids and pay my bills," said Mitch Gonzalez, 33, who is crossing the picket line. "The union wouldn't help me, so I had no choice but to work."

Robert Kinnerbrew, who was laid off in March, 1982, as a yardworker, has returned as a skimmer, opening the furnaces to let out the molten ore. "You can't beat it," he said. "It's good money. Nearly $13 an hour."

"Of course," Isner said scathingly, "when you've got a guy laid off for a year and a half, he's easy bait for coming back."

Phelps Dodge says many miners still outside the gates have been intimidated into staying away. This is a civil war, and both strikers and non-union workers say that right is on their side.

"Our problem is with the company, not with the state," Primo Martinez said. "I think the governor is going to regret his decision to bring in the guard. It's not going to bring out the votes, not from labor or Hispanics in this area anyway."

But memories and brave words may not be enough. "I believe in what the union is fighting for," a young mother who normally works in the Phelps Dodge storehouse said. "But at this point, I just hope I have a job to go back to. People didn't think it would go this far."

The townspeople expect the strains to continue and predict further changes. "You won't see so much of the father, son and grandson being born, working and dying in the mining towns," one striker said.

Morenci's troubles are far from over. Heavy wooden shutters still guard the windows at the company's administration block, down the road from the copper smelters and smokestacks. And armed men still flank the gates and watch from dump site No. 10 as convoys of workers enter and leave.

Early Tuesday morning, under the watchful eyes of hundreds of police officers, Phelps Dodge will reopen its employment office, boarded up since the windows were smashed by strikers two weeks ago.

The move is not only a symbol of Phelps Dodge's determination to carry on, on its own tough terms, but also the end of another chapter in the story of the changing fortunes of this company town.