Copper's climb to all-time records will spur substitution in some applications, but the metal's unrivalled conductivity and a dearth of alternative technologies will ultimately limit this trend.

Fuelling consumers' incentive to substitute, three-month copper on the London Metal Exchange struck an all-time high of $9,325.25 a tone on December 21.

The metal used in power and construction, up some 25 percent so far this year, was at $9,280 a tone at 1033 GMT on December 23.

The copper price looks set to stay robust, with the market expecting a hefty deficit next year due to climbing demand in top metals consumer China, global labor issues and falling ore grades in top producing countries such as Chile.

The likelihood is the rate of substitution will increase, Jon Barnes, principal consultant at CRU. It could certainly accelerate, he said.

Substitution has accounted for about a 2 percent annual loss in copper usage globally over the past three years, according to the International Copper Association/CRU.

If prices soar significantly higher, to $11,000 or $12,000 a tone, this market loss could rise to 3 or 4 percent, Barnes added.

At that level people may decide it's fundamentally too expensive, he said.

Applications where copper will continue to be substituted include cables, plumbing tubes and telecommunications, where aluminum, plastic and fibre optics, respectively, are the new materials of choice. Manufacturers of heat exchangers, used in air conditioning for example, are also turning to aluminum.

MARKET TIGHTNESS

Underscoring worries about tightening copper supply, a 2011 deficit of 400,000 tones has been predicted by the International Copper Study Group.

World refined copper consumption exceeded production by 436,000 tones between January and September this year, the group said.

Aluminum, cheaper and lighter than copper, is the metal benefiting most from copper substitution, and in recent years has accounted for around half of the red metal's substitution, according to the ICA/CRU.

Aluminum traded at $2,448.25 a tone, versus a close of $2,462 on Thursday, up 9 percent so far in 2010.

The metal used in transport and packaging is nearly four times cheaper than copper.

One area where substitution could increase is air conditioning, with aluminum piping replacing copper.

That's one area that is very significantly under threat and it's a large market, said Paul Dewison, research manager at CRU, adding the air conditioning market used about 1.3 million tones of copper a year.

We're likely to continue to see a fairly rapid rate of substitution, which we've seen since about 2004, he said of the broader copper market.

Also, in heat exchange, stainless steel is replacing copper in some applications, according to UK copper products distributor Cubralco.

Plastic's replacement of copper tubes in plumbing and heating was especially prevalent in domestic applications in the smaller diameters, Cubralco also said.

LIMITS TO SUBSTITUTION

In the plumbing tubes market copper usage now stands at less than 500,000 tones globally. Meanwhile, copper usage in telecoms stands at around 400,000 tones globally, CRU said.

In these applications much substitution has already taken place, however, there is still room for more, industry sources said.

Moreover, copper's conductivity, as well as a lack of developed technologies using alternative materials, mean that substitution's effects on the copper market will be limited.

While aluminum can replace copper in cables, the former metal's lower conductivity means that consumers need to use more of the metal to produce cables. This requires more space to accommodate the extra cable width.

So, despite copper being costlier, consumers have to weigh up these trade-offs.

There is evidence to suggest that higher prices are speeding up substitution, Nicholas Snowdon, analyst at Barclays Capital, said.

Substitution with aluminum in power cables would likely increase, and substitution as a whole would slow growth in copper demand, he added.

But, regardless of high prices, copper's appeal will not significantly fade.

Demand for copper in wire and cable in particular is still expected to increase above historical trend rates, Snowdon said, citing the ongoing growth of electricity usage in emerging markets.

(Reporting by Rebekah Curtis; Graphics by Vincent Flasseur; Editing by Alison Birrane)

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