Copper Demand to Top Supply for First Time in Four Years, Pan Pacific Says

Copper demand may outstrip supply in 2011 for the first time in four years as China, the world’s biggest consumer, sustains purchases and as ore grades decline, Japan’s largest smelter said.

“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. The shortage next year would be the first since 2007, 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.

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

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