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Sydney
[Australia]
Posted on : Dec 18, 2005
SYDNEY - Rising supply seems to be
catching up with lead prices, which against many expectations, have rallied 30%
in the last five months to 26-year highs.
An uptick in global consumption, driven by
Chinese vehicle manufacturing, caught the supply side napping last year,
resulting in a market deficit of 195,000 metric tons, according to data from
Brook Hunt and Macquarie Research.
This year's deficit is expected to narrow to
152,000 tons. The market's ability to absorb rising supply has surprised many
forecasters, and is likely to underpin prices at least in the short term.

The massive two-year supply shortfall has
resulted in record low stock levels in London Metal Exchange warehouses, which
according to Macquarie analysts, currently represent just a couple of days of
Western world consumption.
But with International Lead & Zinc Study Group
data showing global refined production rising 10% in the first 10 months of this
year compared with consumption of 6.1%, some analysts expect a move back into
surplus in 2006.
In a report Monday, Macquarie Research
estimated a modest surplus of 16,000 tons in 2006, with prices expected to ease
back to an average of $827 a metric ton as a result, from around $1,087/ton
currently.
"Looking into 2006, we have seen the supply
side reacting very strongly, with several projects such as Magellan coming
on-stream and mines, as Endeavour (in Australia's New South Wales state),
increasing concentrate output significantly," Macquarie said.
Canada's Ivernia Inc. (IVW.T) is slated to
reach full production at Magellan in Western Australia by mid-2006 to become one
of the top five lead-producing mines in the world, yielding about 100,000 tons a
year.
The added output is expected to ease the tight
lead concentrates market before feeding through into the refined market.

Other market watchers expect lead's move back
into surplus to take a little longer, although most agree prices will ease next
year.
National Australia Bank minerals and energy
economist Gerard Burg is in the process of upwardly revising the bank's 2006
lead price forecast to $944/ton based on a deficit likely to be smaller than
this year's but still significant.
Robust China-led demand, as well as a slightly
slower than expected supply response, has seen Burg revise his previous view of
a modest deficit next year.
"We're now seeing prices come off just a little
from where they are at the moment but remaining high all the same," he said.

Zinc and lead producer Zinifex Ltd. (ZFX.AU)
agrees.
"Although not yet evident we do still expect
lead prices to soften, but remain above long-term average levels," chief
executive Greig Gailey told the company's annual general meeting last month.
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