Market and product

* Copper still under substitution threat in air-conditioning

* Strong fundamentals support prices, supply deficit ahead

* Aluminium, zinc trade at a quarter of the copper price

LONDON, Feb 17 - Copper's vault to highs above $10,000 a tonne has raised concerns industrial consumers will find ways to use other materials, but substitution is unlikely to have much of an impact on the market in the next few years.

Three-month copper on the London Metal Exchange reached a record $10,190 this week, propelled by Chinese demand and by tight supplies due to falling ore grades and project setbacks worldwide.

The replacement of copper for cheaper materials including aluminium, zinc and plastic has been taking place steadily for years. But copper's more than tripling in price in the past two years has prompted conjecture the trend will gather pace.

Many manufacturers are making plans to substitute copper, Robin Bhar, an analyst at Credit Agricole, said.

"It is happening and maybe it's taken the magical $10,000 level to accelerate those plans," Bhar said, adding that over the past five years substitution has eaten into some 5 percent of the copper market.

"That should even rise three-fold if we see prices stabilising above the $10,000 level," he said of the percentage rise over the next five years.

Ductile, resilient, unrivalled in conductivity and deeply embedded in industrial usage, the red metal has strong defences against substitution risks.

Aluminium can replace copper in cables, but its lower conductivity means that manufacturers must use more of it and need more space to accommodate the extra cable width.

Substitution often requires manufacturers to engage in a potentially costly retooling process. Also technology needs to be developed to enable the use of other materials in some industries, including the surmounting of potential safety and regulatory hurdles.

A recent Barclays Capital note pointed out that a mass move to aluminium for building wire in the United State in the 1960s and 1970s led to a series of fires, and copper was reinstated as the industry standard.

Meanwhile, new uses also are being found for copper such as in antibacterial applications and hybrid cars.

SUBSTITUTION TO DATE

Substitution has accounted for about a 2 percent annual loss in copper usage globally over the past three years, amounting to losses of 430,000 tonnes in 2009, the International Copper Association/CRU said.

It added that aluminium, which costs about one-fourth per tonne, accounts for half of that substitution.

"For areas where there is possible substitution, it is gathering pace," Chris Egginton, managing director of UK copper products distributor Cubralco, told Reuters.

Roofing, plumbing tubes, refrigeration and air-conditioning are areas in which copper is most at risk, Egginton said.

In the roofing sector, copper tonnage dropped 10 percent in 2008-2009, the ICA/CRU said.

UK copper consumer Abacus Tubes said more substitution of zinc for copper could hit roofing. Like aluminium, zinc is a quarter of copper prices.

The shift away from copper could take two to three years in many applications, Credit Agricole's Bhar said. "If it doesn't happen within the next two years then it won't happen."