As supplies improve, lead prices could head south by year-end

Lead prices in the global market have gained over 7 per cent since the beginning of this year but they could end lower by the year-end as supplies are expected to improve.

According to macroeconomic and country risk research house Fitch Solutions, secondary lead production or recycling is likely to be boosted in the second half this year through increased recycling of car batteries.

Global demand

The International Lead and Zinc Study Group (ILZSG), an inter-governmental organisation, said global demand for refined lead is projected to increase to 11.7 million tonnes (mt) this year with the usage increasing in Europe, India, Japan and South Korea.

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At the same time, global lead mine production is expected to increase to 4.71 mt, while refined lead output would be 12.07 mt this year.

“Having taken into account all information received recently from its member countries, the Group anticipates the global supply of refined lead metal will exceed demand by 96,000 tonnes in 2021,” the ILZSG said.

On LME, lead three-month contracts dropped to $2,144 a tonne on Friday (June 4) from $2,228.5 a tonne on June 2. Earlier on May 10, it hit an 18-month high of $2,228.5 before slipping to $1,896 on May 18.

Key battery metal

Lead — a soft, malleable, ductile, bluish-white, dense metallic element — is found in ore with zinc, silver and copper. At least 80 per cent of refined lead goes into production of batteries.

Lead is also used to line tanks that store corrosive liquids and as a shield against X-ray and gamma-ray radiations.

Global mining and metal research and consultancy group Wood Mackenzie (WoodMac), in its research, said that lead ended strongly in May without any supportive fundamentals.

It said that price positives for lead were continuing tightness of concentrate.

‘ Surprising rally speed’

UK-based business intelligence company CRU Group said that lead had previously been ignored and lagging behind, and that a “catch-up” was due at some point. “However, the speed and strength of lead’s rally has been somewhat surprising,” said CRU principal lead analyst Neil Hawkes.

Farid Ahmed of WoodMac, in his forecast for the metal this year in January, had told Investing News that use of refined lead will continue to grow in the global automotive industry, despite tightening environmental regulations.

Though the use of lithium batteries is increasing with more electric vehicles being manufactured, limited availability of lithium will force battery manufacturers to continue relying on lead batteries over the coming decade.

Currently, lithium is ruling at $91,000 a tonne with the rare metal gaining over 90 per cent since the beginning of this year due to supply not meeting the huge demand.

Lead battery stocks

CRU’s Hawkes said that lead price rise had come at a time when the lead and battery supply chain has struggled in some parts of the world to replenish automotive lead battery stocks.

Most lead smelters have been running at high production rates, fuelled by sufficient feed while scrap flows have been rising. However, concentrate availability has tightened on mainly virus-related mine cuts, he said.

The CRU expects more spikes on further positive vaccine news, but also occasional dips on negative virus news through winter that could put to the test how much battery stocks have been replenished exactly through summer and autumn.

WoodMac’s Ahmed said that lead rebounded sharply in the second half of last year with its recovery being stronger than expected. The price rise was mainly due to worries over supply as coronavirus-related mine disruptions persisted, mainly in South America.

Chinese demand

While WoodMac has projected a 5 per cent rise in China’s lead use this year, ILZSG said that the Communist nation’s demand would rise a meagre 0.3 per cent.

The lead inter-governmental group projected use of lead to grow by over 7 per cent in Europe, 9.6 per cent in India, 10.6 per cent in Japan and 12.2 per cent in South Korea. However, WoodMac has forecast a 4 per cent rise in demand in the rest of the world.

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Fitch Solutions, taking a look at the developments till April, has raised its average lead price forecast to $,2050 a tonne from its earlier $1,950. It has also raised its long-term price forecast, projecting prices next year to average at $2,113.

The US rating agency said that demand growth would outstrip production gains that could erode the annual production surplus this year.

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