A man works at a copper smelter at the Tongling Nonferrous Metals Group in China. [Photo / Bloomberg]

TOKYO - Copper demand will outstrip supply for the next two years as the economy recovers, China sustains consumption and mine output drops, Japan's top producer said.

Demand will likely exceed supply by 635,000 metric tons in 2011, the biggest deficit since 2004, compared with 234,000 tons last year, Hidenori Kamoo, general manager of the marketing department at Pan Pacific Copper Co, said in an interview on Jan 18. The shortage may be 91,000 tons in 2012, he said.

Copper, used in wires and pipes, climbed to a record $9,781 a ton on Wednesday after gaining 30 percent in 2010 as the world economy recovered from its worst recession since World War II. Goldman Sachs Group Inc says the price may climb 12 percent in the next year to $11,000 a ton.

Michael Jansen, metals strategist at JPMorgan Securities Ltd, predicts a deficit of 500,000 tons to 600,000 tons this year.

Macquarie expects a shortfall of 550,000 tons, while the International Copper Study Group expects a shortage of 435,000 tons.

"The market will see a wider deficit because of steady demand growth in emerging markets, including China and Brazil, a gradual economic recovery in the US and Europe and tight mine supplies," Kamoo said. This year's deficit will be the most since 2004, according to company data.

While there is likely to be a shortage, growth of copper consumption in China, the biggest user, may almost halve this year as the government curbs monetary expansion, and cools demand, Jansen said.

China last week told banks to set aside more deposits as reserves for the fourth time in two months, stepping up efforts to rein in liquidity and cool inflation after foreign-exchange holdings rose by a record and lending exceeded targets.

Stockpiles at Shanghai Futures Exchange warehouses rose to the highest level in seven months, adding 481 tons to 132,647 tons last week, according to the bourse. The copper supply is adequate in China and a "price spike" is unlikely before the Chinese Lunar New Year, Goldman said in a report on Jan 17.

Australia & New Zealand Banking Group Ltd expects copper to average $4.57 a pound this year, up 12.5 percent from a previous estimate, the bank's analysts Mark Pervan and Natalie Robertson wrote in a report. Morgan Stanley projects copper prices will average $4.45 a pound in 2011, up 24 percent from an earlier estimate.

Pan Pacific projects global consumption will climb 5.1 percent to 19.72 million tons in 2011, from last year's 8.6 percent increase to 18.76 million tons, Kamoo said. China's demand is expected to expand to 7.7 million tons from 7.04 million tons, he said.

"We may see global demand exceed 20 million tons in 2012 for the first time," Kamoo said. Last year, the market swung back to a deficit for the first time since 2007 because of an unexpected increase in demand following heat waves and better-than-expected car sales in China, he said.

World production may increase 3 percent to 19.08 million tons this year after growing 1 percent to 18.52 million tons, he said. In 2012, output may expand 6.2 percent to 20.26 million tons, he said.

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Chinese smelters produced 444,000 tons in December, 7 percent higher than a year ago, according to the National Bureau of Statistics' data on Thursday. Output in 2010 gained 12 percent to 4.79 million tons, the data showed. That is a record, according to Wang Ning, an analyst at Xiangyu Futures Co.

"Until we see a significant increase in mine supplies from 2013, the market will remain in supply deficits," Kamoo said. Tight supplies may push copper prices up as high as $11,000 a ton this year, he said.

Copper output may decline in Japan by 6.5 percent to 1.44 million tons in 2011 following production cuts by two major smelters, while demand is expected to fall 1.9 percent to 1.04 million tons, Kamoo said. The country's exports of refined copper may total 450,000 tons in 2011, down 15.4 percent from last year, he said.

Pan Pacific Copper said Sept 15 that it would reduce production by about 13 percent of capacity in the six months after Oct 1, from the current 7 percent. The company said it planned to cut output by 10 percent during October to December and by 15 percent during January to March.

"At the moment, we are considering maintaining the 15 percent output cut for the next fiscal year" starting from April 1, Kamoo said. The company will decide on the reduction by the end of March.

Bloomberg News