Surplus lead inventory to cap price gain

Lead demand is expected to recover with the uptrend in global economy and an increase in demand from battery manufactures. Recovery in the Chinese economy and clarity on the outcome of US Presidential elections has helped, too.

China’s official manufacturing Purchasing Managers’ Index (PMI) rose to 52.1 in November from 51.4 in October, the highest PMI reading since September 2017.

The major driver of lead demand has been the automobile sector. The automotive sector in the US, Eurozone and China was affected by the nation-wide lockdowns with unprecedented falls in new car sales in a number of European countries, lower rates of automobile utilisation that reduced the demand for replacement batteries and temporary suspensions at major automotive assembly plants.

Weak demand

The weak demand in the automobile sector during last few months created a huge inventory of the metal. According to the International Lead & Zinc Study Report, the global supply of refined lead will exceed demand by 2,76,000 tonnes this year and further surplus of 1,92,000 tonnes next year. While the report has projected a fall in demand of 6.5 per cent to 11.4 million tonnes this year, it would rise 4 per cent to 11.9 million tonnes in 2021.

The demand for lead in China is forecast to slip by 2 per cent due to a decline in automotive production that should be partially offset by rises in the output of e-bikes and lead-acid batteries. On the positive impact, the dollar has depreciated over 5 per cent across major currencies.

Liquidity push to support the dwindling economies in China and the US has also underpinned the industrial metals. Naveen Mathur, Director, Anand Rathi Commodities, said the sentiment was positive in the base metals as a whole but lead individually may not rally as much as other metals.

He added that the MCX December future contract can see resistance on profit booking on every rise in prices investors should stay cautious.

Global recovery

In early signs of economic recovery, China’s output of air-conditioners, refrigerators and washing machines increased 13 per cent year-on-year in the third quarter.

The US economy rebounded at a record pace of 33 per cent in the September quarter as the concern on a double-dip recession still lingers. The three-month forward lead contract was trading firm at $2,127 a tonne against the cash buy of $2,117 a tonne logged on Tuesday.

On the domestic front, MCX lead has appreciated by about 9 per cent in 2019. It has seen the slowest gain of about 5 per cent among industrial metals this year in line with gains on the LME. The demand for lead from battery making companies are extremely strong in last two months and expected to continue given the increase in automobile sales, said Prathik Sinha, a Mumbai-based lead dealer.

The government’s attempt to cut imports and boost domestic production by providing Production Linked Incentives to build domestic manufacturing capabilities will also demand for the entire base metal complex including lead from various other sectors, he added.