Europe’s demand for copper products is expected to rise by 18-20 percent in 2010 and return to pre-crisis levels in 2012, said a senior executive at KME Group (KME.MI: Quote), a leading maker of copper and copper alloy products.

Consumption of copper products, widely used in construction, power and automotive industries, rose about 20 percent in the first six months of this year in Europe after a 25-30 percent drop in crisis-hit 2009, KME’s Domenico Cova told Reuters.

With expected growth of 18-20 percent this year and 5-7 percent in 2011, Europe’s copper product demand will still lag behind pre-crisis levels, said Cova, chief executive of KME Group’s main copper unit, in a telephone interview on Wednesday.

“For a return to pre-crisis levels, we should wait for 2012, if everything goes well. But a lot will depend on macroeconomic factors,” said Cova, who is also deputy chairman of the International Wrought Copper Council (IWCC). He spoke ahead of LME Week, an annual gathering in London of the metals industry.

Benchmark three-month copper CMCU3 on the London Metal Exchange rose 23 percent in the third quarter, driven by Chinese demand and tightening supplies, and hit its highest level since July 2008 above $8,300 on Wednesday on inflation concerns

“From the industrial point of view”, the surging prices, powered by inflows of financial capital, are not justified by fundamentals of supply and demand and should have fallen back, thanks to sufficient supplies, Cova said.

Cova said he did not see a shortage of copper now or in the future and that the deficit forecast by some analysts of under 200,000 tonnes in 2011 would be marginal and not enough to disrupt the world copper market.

A Reuters poll of metal analysts in July gave a consensus forecast for a 180,000 tonne deficit in the global copper market in 2011, following an expected surplus of 41,000 tonnes in 2010.

High and volatile metal prices are likely to speed up the substitution of plastics and other cheaper materials for copper wherever possible, Cova said.

PRE-CRISIS LEVELS NOT BEFORE 2012

Price volatility will rise if any exchange-traded products physically backed by copper, such as exchange-traded funds (ETFs), are launched, he said.

“They would only amplify volatility … They will not help industry … We as industrial operators could do without them,” Cova said.

Exchange-traded commodity products make commodity exposure easier for institutional investors such as pension funds, which do not have mandates to use futures markets. Talk of a copper ETF has been doing the rounds for more than a year. [ID:nLDE68J0R6]

Milan-listed KME is expected to increase its output of semi-finished copper, copper alloy and special products by about 20 percent this year and by 5-10 percent next year but not return to pre-crisis levels before 2012, Cova said.

Copper consumption by the group will increase in line with output, he said.

KME, which has 13 plants in Germany, Italy, France, Britain and Spain and one plant in China, increased production by 21 percent to 264,000 tonnes in the first half of 2010. [ID:nLDE67421V]

Demand from Europe’s construction sector has remained stable at around 2009 levels so far this year, while demand from other industries such as the automotive and mechanical sectors has been recovering faster, Cova said. (Editing by Jane Baird)

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