Lead prices have begun to creep up this year amid a whittling down of inventory and pick-up in demand. In particular, a turnaround in the fortunes of the automobile industry could boost the prospects for the base metal over a longer term horizon.
The upward movement in prices of the metal has taken place despite a situation of over-supply, with production outstripping demand amid high inventories. The extent of oversupply is pegged at 174,000 tonnes in 2013, up from 108,000 tonnes in 2012. But global demand for refined lead metal is estimated to have risen by 3.4 per cent to 10.8 million tonnes in 2012 and the International Lead and Zinc Study Group (ILZSG) has projected a further 3.3 per cent rise to 11.2 mt in 2013.
On the other hand, lead mine production globally is expected to ramp up by 2.8 per cent to 5.4 mt in 2013. This would be a slowdown in output growth from 10.9 per cent increase in 2012, when production amounted to 5.21 mt. In terms of refined lead metal, output will rise by 3.8 per cent to 11.3 mt in 2013, as per the ILZSG, which attributes the improvement to opening of new capacities as well as reopening of capacities that were idle in recent years.
The medium-term trend for lead on the London Metal Exchange looks to be upward, with the metal currently trading at $2,409 a tonne, with support at $2,000/tonne and resistance at $2,600/tonne. A similar trend is seen on India’s MCX, where the metal is trading at Rs 127.8/kg, with support at Rs 101/kg and resistance at Rs 132/kg.
The projected increase in mine production will be almost entirely due to expansion in China. Furthermore, while output is tipped to rise in Mexico, Peru and the Russian Federation, a reduction in supply from Canada will offset the increase.
On the other hand, refined lead output will benefit from the expected reopening of the La Oroya operation in Peru and Glencore’s Kivcet plant in Italy, besides the expansion of Kazzinc’s UstKamengorsk’s operations, the opening of secondary operations in Florida and South Carolina in the US and the commissioning of new capacities in China.
The biggest factor hindering lead prices has been a slowdown in the automobile sector, which is the largest consuming industry, as the metal is used in batteries. European demand is estimated to have been muted in 2012 amid tight finances and it is unclear whether things will improve in the near future. But Chinese lead-acid battery production and exports witnessed a recovery in 2012, rising by 4.8 per cent, and are expected to grow by 4.7 per cent in 2013.
Demand in the US is also expected to rise by 0.6 per cent, but this is lower from 3.9 per cent demand growth in 2012, which was driven by the original equipment and industrial battery sectors.
In India, lead demand in 2011-12 was pegged at 4.1 lakh tonnes by the Planning Commission. The batteries sector accounts for 75 per cent of lead consumption, while the metal also finds use in manufacturing of alloys and chemicals, which constitutes 20 per cent of the total demand. Besides this, cables and other sectors account for the remaining 5 per cent of consumption.
The country is dependent on imports to meet most of the demand, since domestic production is insufficient, with Hindustan Zinc Ltd the only producer. According to Minerals & Metals Review, primary lead production in India shot up to 92,098 tonnes in 2011-12, a 36.9 per cent rise from 2010-11 levels. Besides this, recycling of lead by authorised and unauthorised units constitutes a large chunk of the supply, though estimates vary.