Reuters poll sees lead, zinc and nickel all lower than earlier forecasts

A poll of 42 commodities strategists sees many base metals prices lower this year and next on increased output and inventories.

LONDON (Reuters) - 

Lead and zinc prices are expected to fall this year and next as mine output growth accelerates and inventories keep rising, a Reuters survey shows.

The survey of 42 commodity strategists from around the world carried out over the past month suggests cash prices of zinc and lead on the London Metal Exchange will drop further than forecast in a Reuters poll at the beginning of the year.

The median forecast for 2008 showed cash zinc at an average of $2,133 a tonne this year, 15 percent below the price forecast in the January poll. The survey forecast the 2009 price at $2,000, 9 percent lower than the January poll.

"Although [zinc] has already fallen far, we believe it still has further to fall. We expect a more rapid inventory build as the market moves further into surplus through the rest of the year which will pressure prices below current levels," said Gayle Berry, analyst at Barclays Capital.

The median for lead was an average of $2,252 a tonne in 2008 and $1,872 in 2009, down 11 percent and 5 percent from the forecasts in January.

"Rising mine supply is definitely an issue," said Daniel Smith, an analyst at Standard Chartered, referring to both zinc and lead.

London Metal Exchange stocks of zinc, used to galvanise steel, have risen more than 73 percent so far this year, while lead stocks have almost doubled since January.

But some analysts see upside potential for zinc and lead as falling prices render mines unprofitable, forcing them to close and undermining supply.

"We have seen a bit of oversupply and weak demand for zinc and lead, but this has already been priced in," Eugen Weinberg, an analyst at Commerzbank.

"So what we are really seeing in the coming months and probably even next year is that supply will be restricted by the closure of some mines."

Cash zinc on Tuesday was at $1,859 per tonne, while cash lead was at $2,122 per tonne.

NICKEL

Cash nickel is also seen falling further than forecast at the start of the year, as stocks of the metal have risen and demand from the stainless steel market has fallen behind expectations.

The mid-range forecast for cash nickel for 2008 is $25,500 a tonne, 11 percent lower than the January forecast.

The 2009 forecast is at $23,000 a tonne, 8 percent lower than the previous forecast.

"We see weaker stainless steel demand coming through and we see the nickel pig iron producers in China still ramping up production," said Jim Lennon, analyst at Macquarie Bank.

Nickel prices have come under pressure due to the increased use of nickel pig iron, a cheaper alternative raw material for stainless steel made from low-grade laterite ore.

Although stocks have fallen since January, they are still over three times the volume of inventories in LME warehouses in July last year. Cash nickel was at $20,413 per tonne.

(For summaries and individual forecasts click ) or [MET/POLL])

(Editing by Pratima Desai and Clare Black)

(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.

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