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[United Kingdom]
Posted on : Oct 27, 2005
Lead's supply and demand
outlook for 2006 points to lower prices but other metals among the London Metal
Exchange complex will dominate lead's performance next year, market commentators
said this week.

Analysts have cut their forecasts for the metal, which is mainly used in
lead-acid car batteries, in line with a weaker outlook for most LME traded
metals, to around $830-910 a metric ton, down from an average forecast of around
$940-$960/ton for 2005.

"Lead isn't a very independent metal. It'll follow the complex as a whole," Mark
Cozens, base metals analyst at metals consultancy CRU, said.

Current LME lead prices are overreaching fundamentals at around $970/ton,
skimming close to 15-year highs of $1,022/ton, analysts said.

Prices have snapped higher on the basis of strong copper prices and bullish
signals from its sister metal zinc, they added.

"High fund liquidity may continue to drag lead along with the commodity basket
for a while, but we think it will increasingly look like the emperor with no
clothes amongst its peer group if the price goes much higher," analyst Jon
Bergtheil at JP Morgan said.

The global lead market is seen in surplus of around 30,000-50,000 tons, analysts
say, with global lead output seen up around 4.5% at 7.63 million tons and demand
for refined lead forecast to rise by 3% to 7.75 million tons.

However, current low inventory levels at just over two weeks consumption – four
to five weeks is seen as 'comfortable' – and rising demand from China will
offset some of the bearish pressure, CRU's Cozens said.

Mining and smelting representatives kick off negotiations for annual contract
treatment charges to turn lead concentrate into refined metal this week, which
will continue during the LME Week industry gathering in London next week.

Benchmark treatment charges, or TCs, stood at $100/ton during 2005. Most
commentators expect little change, though charges might drop by around $10/ton
as strong demand from China will "more than make up for a rise in concentrate
supply," CRU's Cozens said.

Negotiations for annual supply contracts for refined lead also get underway
during LME Week, but commentators expect few surprises, forecasting premiums for
lead metal supplies for 2006 at unchanged.

During 2005, annual contract negotiations concluded at around $105/ton over the
LME cash price.

Lead's forecast supply surplus follows first shipments of concentrates from the
Australian greenfield Magellan mine in July. The mine has an annual production
capacity of 100,000 tons of lead in concentrate, which at full capacity will
make it the world's fifth largest mine.

Global demand growth is driven by China, where lead usage is expected to
increase by 11.4% in 2006, compared to a 16.4% increase in 2005, Michael John
Cuoco, research analyst for Mitsui Bussan Commodities Ltd., said in a recent

"Higher lead concentrate imports into China have been a worrying feature of
2005. This concentrate will be converted into metal, leading to a further surge
in refined lead output," analyst Nick Moore at ABN Amro said.

Refined output in China, which has a 27% global market share in 2004, has shown
a "staggering" 25% rise from January to August 2005 to 1.44 million tons,
setting it on course for another record year, Moore added.

Overall, refined production – with recycled material from used car batteries
accounting for 55% of output – was up 9.7% on the year so far, latest data from
the International Lead and Zinc Study Group show.

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