“Supplies won’t catch up with demand next year and we expect there to be a deficit of 200,000 metric tons,” Hidenori Kamoo, general manager of the marketing department at Pan Pacific Copper Co., said in an interview yesterday.

Copper, used in pipes, tubes and wires, faces a “deepening supply crunch” and record prices are highly likely in the next two years, Barclays Capital said in a report on July 27. Prices for immediate delivery will average $7,763 a ton next year as a market shortage widens, the bank said. The spot price in London has averaged $7,088 this year.

“With few new large-scale mines on the horizon and stagnation at existing facilities, in our view, price direction will be upwards given the approach of multiyear deficits,” Barclays said. Demand will exceed supply this year by 132,000 tons and by 386,000 tons next year, the bank said.

Pan Pacific expects the market to be balanced this year because of China’s higher-than-expected first-half demand, Kamoo said. The company had forecast a 300,000-ton surplus, he said.

China imported 1.6 million tons of refined copper in the first half, down from a record 1.8 million tons in the year-ago period, according to data from the Beijing-based Customs General Administration. The country imported 1.5 million tons in 2008.

Smelter Cuts

“Even though global demand for cathode may a bit slow later this year following Europe’s sovereign-debt problems and China’s tightening monetary policy, supplies will remain very tight, especially in East Asia,” he said. Pan Pacific predicted global demand will increase 6.9 percent in 2010 and 3.8 percent in 2011, he said.

Should smelters continue to see lower grades of ore, falling processing fees and tight supplies of scrap, some may reduce production of refined metal later this year, Kamoo said.

Pan Pacific plans to produce 7 percent less than its annual capacity in the April to September period, while Sumitomo Metal Mining Co., the country’s second-largest producer, expects a 10 percent output cut in the year started April 1.

“We cannot rule out the possibility smelters may cut output further from October if unfavorable market conditions continue,” he said. “The end of subsidies for eco-friendly vehicles in Japan may also drive metal producers at home to consider output cuts,” he said.

Increased Premiums

Japan’s subsidy program, which exempts purchases of electric, hybrid, natural gas and some diesel vehicles from taxes, will expire at the end of September.

Demand from the auto and semiconductor sectors in Japan, South Korea and Southeast Asian nations has pushed physical premiums higher, he said. Copper premiums for China may be more than $100 a ton in 2011, from $85 a ton this year, he said.

Spot premiums for Shanghai on a cost, insurance and freight basis stood at $100-$120 a ton, up from $70-$100 a ton last year, Kamoo said.

Copper for three-month delivery dropped 0.9 percent to $7,361 a ton on the London Metal Exchange at 12:18 p.m. Tokyo time. Stockpiles tracked by the LME fell 0.5 percent to 410,475 tons yesterday, the lowest level since Nov. 17.

--Editors: Jarrett Banks, Matthew Oakley

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.

Source: Bloomberg Businessweek

According to a spokesman at the world's largest copper producer, "the growth in demand in China is practically unstoppable".

SHANGHAI (Reuters) -

China's copper demand is expected to grow at 8 percent this year from last year, and at a similar pace next year, a senior executive of Chile's Codelco, the world's largest copper producer, said on Thursday.

"The growth of demand in China is practically unstoppable," Rodrigo Toro, corporate senior sales vice president of Codelco, told reporters on the sidelines of a meeting with clients.

Toro said Beijing's tighter monetary policy was a healthy dose to control the country's breakneck growth.

"We are happy to see the demand in China will continue at very healthy rate, not as big as would be at 12 percent GDP growth, because producers would not be able to respond to that additional demand."

He said the global copper demand growth would be 4 percent this year, but added it might improve next year if the economy picked up pace.

Codelco produced 1.782 million tonnes of copper in 2009, up 16 percent from a year earlier, after years of dwindling output.

The company expected to maintain the same level of output this year as well as in the next two years, its chief executive Diego Hernandez, told clients earlier.

The company said earlier this year that it planned to invest $3 billion each year for the next five years to revamp century-old mines and exploit new deposits as part of its plan to lift output to around 2 million tonnes of copper per year.

EXPANSION PROJECTS

Ninety percent of Codelco's copper production is in the form of cathode, but the ratio of copper concentrate is expected to rise in the next 7 to 8 years after the expansion projects at Mina Ministro Helas and Andina mines are executed.

Toro said the company will focus on resources in Chile, rather than venturing overseas, in the period.

"We would be impractical to be thinking of additional projects in the next five years," he said.

Toro declined to forecast term premiums for next year, but said if based on current situation in the market, term premiums should rise for 2011.

Chinese merchants are keen to build copper stocks in the next few months through bargain-hunting, fed by expectations term premiums to China for shipments next year will rise to over $100 over cash LME prices MCU0 for Chilean refined copper cathode imports, up 18 percent from this year's $85 level. [ID:nTOE66S08T]

Copper treatment fees, also known as TC/RC, were expected to remain at low levels, Toro also said.

"Treatment charges for copper concentrate will remain extremely low for quite some time. The overcapacity in smelting and refining is so big that the demand for concentrate will exceed largely the possibility of supply of copper concentrate," he said. (Reporting by Rujun Shen and Jacqueline Wong; editing by James Jukwey)

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