The world market for refined lead and zinc will remain in deficit this year, according to the latest forecast made by International Lead and Zinc Study Group.

While the lead market will remain in deficit of 49,000 tonnes, zinc deficit, as in 2013, will be 1,17,000 tonnes.

The study group expects that global demand for refined lead will increase by 4.4 per cent to 11.73 million tonnes (mt). The increase will be driven by higher usage in China (7.4 per cent). The Asian major accounted for 45 per cent of total global lead usage in 2013. Demand growth in other markets – mainly the US, Europe – will be modest.

Global mine production is expected to increase by 5.2 per cent this year (7.5 per cent in 2013) to 5.66 mt as the output in Australia and China is expected to increase. World production of refined lead is forecast to rise by 4.3 per cent to 11.68 mt. The output in South Korea, currently the world’s third largest producer of lead behind China and the US, is expected to rise by 5.7 per cent to 5,00,000 tonnes. Elsewhere in Asia, production in China, India and Kazakhstan is forecast to rise.

Demand weakness

Given the evolving supply-demand mismatch and forecast deficit, lead prices ought to have been firming; but investors are somewhat disappointed by the weakness in lead prices. LME cash prices have been hovering around $2,000/t. Recent demand weakness has put pressure on the market. There was contraction in Indian primary demand of close to 50,000 tonnes in the fourth quarter of 2013 following weakness in the domestic auto sector.

At the same time, a weak rupee stimulated refined export. With domestic market and currency outlook improving, India’s effect on the lead market may become more positive, experts assert.

Refined zinc metal demand worldwide is expected to rise by 4.5 per cent (4.7 per cent in 2013) to 13.58 mt this year. Usage in China, currently accounting for 44 per cent of world demand, is forecast to rise by 5.8 per cent while in Europe and US increases will be a modest 3 per cent and 1.7 per cent respectively. Growth is seen in India, Korea and Turkey too.

Production increase

On the supply side, global mine production is projected to rise by 2.6 per cent to 13.57 mt in 2014, driven by increased Chinese and Australian supply. Chinese production of refined zinc is expected to rise by 7.3 per cent this year which is set to drive growth in global production. Output in the US and Europe is also set to rise. Higher production is expected in India, South Korea, Mexico and Namibia, the group said.

Notwithstanding all these, the market is vulnerable to disruptions and slippages. Supply-driven tightening in zinc fundamentals is expected to develop gradually. Many analysts are bullish on zinc and see a 10 per cent upside between now ($2,000) and the next three quarters. Much of the action may take place in the second half of the year.

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