The Hindu Business Line : Medium term outlook favourable for lead

Mumbai, Aug. 5 It has been a remarkable year so far for lead. Prices have broken records. The 3-month lead rose to an all-time high of $3,500 a tonne in mid-July, breaching the 36-year inflation adjusted monthly average high of $ 3,384/t reached in May 1979.

Supply side story

The rapid ascent in prices since the beginning of the year has largely been a supply side story with disruptions at mines, smelters and refineries, which have resulted in further tightening of a market that was already facing chronic shortage following several consecutive years of deficit.

Experts say a long-term structural tightness in lead has developed.

Currently, lead market fundamentals remain strong. Ongoing supply disruptions, robust Chinese demand, declining LME inventories and increasing market tightness translate to prices that are substantially upwards of $3,000/t. The metal traded at over $3,200/t Thursday last.

Significant production losses hamper supply growth. Production problems in the concentrate market mean that supply is going to stay tighter for longer, which is already restricting Chinese refined output. What is the outlook for lead prices? “It is positive”, according to a report of Barclays Capital Research.

The lead metal and concentrate markets are expected to record another year of deficit in 2007 taking stocks to critically low levels. There is also expectation of further strength at the front end of the forward price curve and for prices to retest and overshoot recent highs.

Barclays has set a one-month price target of $3,600/t and has recommended a long position. Next year, the refined and concentrate markets are expected to move into surplus which could easily be wiped out by the closure/delay of one mine or refinery, the report warned. So, with the supply chain looking tighter for longer and Chinese consumption underestimated, a lead price of well above $2,000/t can be sustained in the medium-term and there is strong fundamental support for an average of $2,200/t in 2008 and $2,000/t in 2009, the report claimed.

Prices are likely to be volatile and there is significant potential for spikes well above these levels, Barclays asserted adding that lead has more favourable medium-term fundamentals than its sister metal zinc. Lead prices have the potential to overtake zinc.