* Prices to fall to $1,400 in Q4 as supply improves
* Sees long term increase in demand from China
* Expects structural supply shortage over next few years
LONDON, July 13 (Reuters) - Standard Chartered (STAN.L) raised its lead price forecast for 2010 to $1,456 a tonne from $1,338, saying it expects a structural supply shortage over the next few years coupled with an increase in demand from China.
Near term, however, the bank said it expects battery- material lead, currently trading up 60 percent on the year at around $1,560 a tonne, to fall back to an average $1,400 in the fourth quarter.
“While lead demand has proved relatively robust through the recent downturn, we believe that prices have rebounded too far and we are looking for a pullback in the near future,” the bank said in a research note.
It noted refined lead output in China rose 15 percent year-on-year in the first 5 months of 2009 while mined output jumped 30 percent month on month in May, as China accounted for 37 percent of global supply.
Outside China, there have been some compensating shutdowns, notably the 130,000 tonne a year La Oroya smelter in Peru and the 100,000 tonne a year Porto Vesme smelter in Italy.
Nonetheless, LME stocks have been rising strongly. They are currently at 93,000, double the level at the start of the year, and there are reports of high stock levels in China.
China imported 110,000 tonnes of lead in the first five months of this year — 20 times the level imported in the same period last year.
Standard Chartered expects Chinese demand to dip over the seasonally weak third quarter but to remain elevated for the year as a whole, leading to a modest growth in global demand.
Overall, it expects the lead market to record a surplus of 143,000 tonnes this year. Next year, by contrast, the surplus will shrink to just 2,000 tonnes, while in 2012, the market will record a deficit of 222,000.
“We expect a structural shortage of supply of lead over the next few years, which will help to boost prices once demand recovers. Furthermore, strong demand in China should keep global growth rates well above historical averages,” said the bank.
It added that it does not expect a supply response from the mines because lead is mined as a byproduct of zinc, and zinc prices are expected to remain subdued over the next few years.
About 71 percent of lead produced globally is used to make batteries.
Reporting by Maytaal Angel. Editing by Peter Blackburn