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Zinc price to peak in Q3, then slump; lead to just slump: SG news  6/30/2006

The price of zinc will top out this quarter and then slump, but lead ? which saw its peak last quarter ? is already on a down slope that will last for the next year and a half, according to Societe Generale 's latest issue of Commodities Research.

Zinc 's London Metal Exchange cash price averaged $1,381/mt in 2005. In the first quarter of 2006, its price averaged $2,248 then rose to $3,300 in Q2 and is forecast to average $4,100 in Q3, but from there on it 's all downhill. SG predicts a Q4 2006 price of $3,050 that will fall to $2,725 in Q1 2007, $2,450 in Q2, $2,250 in Q3 and $1,975 in Q4 for a 2007 average of $2,350/mt. The LME cash price was $3,020 Wednesday.

SG describes the market as moving from a destocking period last year that cut demand growth from 7% in 2004 to 1% in 2005 into a period of 5% growth in 2006 dropping slightly to 4.5% in 2007. Global refined zinc production is expected to increase 5-5.5% this year and then jump by 6-7% in 2007 with mine production growth more than doubling to 9% in 2007 and 2008. This increase will be due to mine restarts (Lennard Shelf), expansions (Antamina) and new mines (San Cristobal). There could be a surplus from 2008 onwards, SG suggests.

Lead 's LME cash price averaged $1,095/mt in Q2 2006. SG predicts the price will slide to $1,075 in Q3, $950 in Q4, $900 in Q1 2007, $825 in Q2, $750 in Q3 and $705/mt in Q4. The LME cash price was $960 Wednesday.

SG reasons: "Lead has been hurt by rising LME stocks and, although to date this has been due to the resurfacing of unreported inventory, we forecast that sustained firm production growth will tip the market into sizeable surplus next year (and beyond). The metal is likely to continue to underperform and we expect further hefty price erosion over at least the next 18 months, eventually to below $700/mt."

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