``We actually think there's a requirement for about 150,000 tonnes of new (greenfield) capacity,'' research analyst at CRU, John Martin, told the annual International Magnesium Association conference. This equated to two or three plants.

Much more would be needed if magnesium became cheap enough to be used more widely in vehicles, according to CRU.

Martin forecast an average magnesium price of $1.55/$1.60 a lb to 2008, basis US western spot, from an average of $1.66 a lb in 1998.

But this could drop to around $1.25 -- making it competitive with aluminium in the auto industry -- if much more metal was produced

``There is a danger that if too many projects go ahead, there could be oversupply,'' he said in response to a question.

Demand was expected to grow by 3.5-4.0 per cent a year to 2008, driven by a 10-11 percent increase in die-casting offtake. Magnesium is used increasingly in die-cast alloys for the auto industry to reduce weight and hence fuel use and emissions.

Martin was not as optimistic as other analysts who expected more than 20 per cent growth in die-casting, since he said magnesium was unlikely to be able to compete on cost with other materials.

Magnesium needed to be about 1.5-1.8 times the aluminium price to be attractive to die-casters, from more than twice the price at present. Based on CRU's long-term aluminium forecast of 70 cents a lb, magnesium needed to fall to $1.05/$1.25 a lb to penetrate the market.

``We don't think the competitiveness of magnesium will actually get low enough to generate the 20 per cent growth,'' he added.

Among the other main areas of consumption, aluminium alloying was seen growing modestly while steel desulphurisation offtake was expected to be at best flat.

Consumption has grown by 3.5 per cent a year over the last 15 years, boosted by a 20 per cent a yearsurge in die-casting.

But exports from China and the CIS had risen sharply,limiting price gains, and the former was expected to raise output with price.

``China is likely to become the swing producer in the industry.''

Exports from the CIS and China were seen unchanged over the next couple of years but would fall to around 60,000 tonnes by 2008.

Magnesium was set to move into its first supply deficit since 1994.

``With the closure of the Dow-Freeport facility the market is expected to move into deficit this year,'' Martin said. Dow Chemical closed last year, removing 65,000 tonnes of annual capacity.