* Copper users battling weak demand, high and volatile prices
* Investor interest leaves copper prices high despite poor demand
* More copper substitution expected; EU demand flat from last year
By Maytaal Angel
LONDON, March 20 (Reuters) - Copper products maker KME Group said its European customers are scrambling for cash and seeking even longer payment terms than last year at the peak of the lending squeeze seen during the sovereign debt crisis.
Riccardo Garre, chief executive of KME, said that while EU bank lending to small- and medium-sized enterprises was no worse this year than last, customers were struggling to make payments as they battle weak demand combined with high and volatile copper prices.
"Payments terms are done at 30 days, 60 days or even 90 days in some countries. It's difficult to quantify but there's a deterioration, and on top of that there's an increase in bad debts because companies are going bankrupt," Garre said.
Italy-based KME consumes about 5 percent of the estimated 4 million tonnes of copper used annually in Europe. Its clients include those in the hard hit construction sector, as well makers of parts for cars and white goods.
In 2011 and early 2012, bank lending was constricted by a regional debt crisis and tougher global capital rules that at the time put some 3 trillion euros ($4 trillion) worth of corporate loans at risk of being cut.
While EU bank lending to small and medium sized enterprises has ceased to shrink, they continue to have difficulty raising funds.
This week, a eurozone decision to partially fund a bailout of Cyprus by taxing savers took the crisis to unprecedented territory, raising fears that a scramble to withdraw cash from banks could spread to larger states.
"So far banks gave more or less the same amount of money as last year, but in a few months annual reports for several copper players will show they're in a difficult situation, and the risk is banks will close more loans."
Garre said copper demand in Europe remained depressed but steady this year. KME's sales, for example, declined 12 percent last year but have been flat at low levels this quarter when compared with a year ago.
According to the International Copper Study Group, demand for copper in Europe declined 7.5 percent from January to November last year. By contrast, copper prices over the period rose by about 5 percent.
"When there is a crisis like the ongoing crisis in Europe and you have to manage high prices of goods and volatility, it's mission impossible," Garre said.
"More and more, copper has moved from an industrial metal to a financial commodity, our customers have to buy copper (products) at high prices despite deteriorating demand. This is accelerating substitution," Garre said.
Garre said over the past five years, nearly half a million tonnes of copper have been substituted in Europe by cheaper metals or plastics - equivalent to about 2.5 percent of annual consumption.
KME expects to consume about 100,000 tonnes of copper this year, unchanged from last year, and believes restocking by its customers and improving industrial output globally will prevent its copper use falling below last year's levels. (Reporting by Maytaal Angel; Editing by Anthony Barker)