Calyon CMR has made sizeable upgrades to its 2007 forecast prices for lead and nickel on expectations for continued high demand at a time inventories are slumping, it said.

The investment bank has hiked its price outlook on nickel by 12.3 pct to 34,250 usd per tonne and on lead by 26.4 pct to 1,580 usd, citing continued tightness in a market that has seen both metals hitting record highs this year as inventory stocks continue to slide.

A continued increase in stainless steel production, which absorbs the majority of global nickel stocks, is expected to support demand for the metal, which hit an all-time high of 50,875 usd per tonne in March.

The bank said, however, that it sees the extreme shortage of the metal easing slightly as inventory restocking is completed and as non and low-nickel stainless steel grows in popularity.

Calyon also hiked its forecast for lead prices, citing continued drawdowns in LME inventories after a number of suppliers in Asia and Europe ran into delivery difficulties in recent months.

Xstrata's Northfleet refinery declared force majeure on lead deliveries in February, citing a shortfall in feedstock from its Isa mine in Australia.

Chinese lead shipments have also been hit by changes in tax legislation, with Chinese lead exports falling 80.6 pct year-on-year in January, it said.

The bank also upped its forecast for 2007 copper prices by 4.2 pct to 5,450 usd per tonne. Demand from China – a major driver in the metal's recent gains – is seen growing 8 pct year-on-year, although US consumption growth is seen flat on the sluggish housing market.

Higher copper production is likely to weigh slightly on prices going forward, it said. Calyon forecasts 7.1 pct production growth year-on-year, it said, the highest rate for a decade.

Calyon also upgraded its forecast for aluminium prices by 6.7 pct to 2,550 usd per tonne, and cut its outlook on zinc by 0.6 pct to 3,450 usd per tonne.