Commodity Analysis

Lead prices to remain benign in 2020

Parvatha Vardhini C | Updated on February 16, 2020 Published on February 16, 2020

Output to go up by 3.9%; supply will exceed demand, leaving a surplus of 55,000 tonnes

In 2020, both mine output and refined metal supply are anticipated to rise over 2019 levels, even as demand is likely to remain soft.

Lead prices that hovered around $2,200 a tonne in mid-October 2019 have cooled to around $1,500 a tonne now.

Until early 2018, international lead prices on the London Metal Exchange had showed an increasing trend, moving from a multi-year low of $1,600 per tonne in early 2016 to $2,500 a tonne by October 2017, and to $ 2,700 a tonne in early 2018. However, prices declined after that, touching a low of $1,885 a tonne in end-November 2018. Thereafter, prices were volatile for a year, hovering between $1,800 and $ 2,200 a tonne, before cooling to the current levels.

In India, MCX spot prices have more or less mirrored international trends. Domestic lead prices stand at about ₹150 a kg now, lower than ₹160 a kg around a few months ago.

In comparison with 2018, both production and usage of lead were lower in 2019. However, lead prices rose in bouts in 2019 due to higher demand than supply that year.

The latest available data from the International Lead and Zinc Study Group (ILZSG) indicate that the global metal production came down by 0.7 per cent in the first 10 months of 2019 compared with the same period in 2018. While there was a rise in metal production in India, Korea and Mexico, the overall global output declined mainly as a result of lower output in Argentina, Canada, Kazakhstan and Australia where technical issues at Nyrstar’s Port Pirie smelter resulted in a significant reduction in output. For the same 10-month period, refined global lead metal usage fell by 0.5 per cent.

Though production and demand were down, prices moved northward in spells in 2019 as global usage of refined lead metal exceeded the metal production.

For the first 10 months of 2019, usage surpassed production by 81,000 tonnes. Stocks to the tune of 38,000 tonnes were liquidated to meet the higher demand.

Why prices cooled

Post October 2019, prices began to correct as demand weakened.

In May, ILZSG estimated that global demand will rise by 1.2 per cent in 2019 to 11.87 million tonnes. By October, it was forecast to fall by 0.5 per cent to 11.81 million tonnes (actual 2019 figures awaited).

This drop is predominantly due to a slowdown in China (about 40 per cent of the global usage).

For 2019, Chinese usage is forecast to drop by 1.1 per cent, influenced by a decline in automotive production and increased use of lithium-ion batteries in motorcycles, e-bikes and uninterruptable power supply (UPS) back-up systems. Other global economies suffered a slowdown too.

Initially, usage of lead metal in the US was expected to grow by 1.1 per cent and in Europe by 1.8 per cent. But towards the end of 2019, lead usage was forecast to decrease by 0.7 per cent in Europe and the US. Weak automotive sales in Germany, France, Italy, Spain and the UK were to blame.

The general sluggishness in demand due to the economic slowdown across the globe has pulled down the prices so far in 2020 as well.

2020 outlook

Lead prices could continue to be range-bound in 2020, and sharp spikes look unlikely. This is because, both mine output as well as refined metal supply are anticipated to rise over 2019 levels, even as demand is likely to remain soft.

Lead mine output is projected to increase by 3.9 per cent to 4.94 million tonnes this year.

An increase in mine production in Australia and India, apart from new capacities that come on stream in Canada, Kazakhstan and Mexico, is expected..

In Europe, lead mine output is projected to move up by 2.2 per cent in 2020. As far as lead supply goes, a 1.7 per cent rise to 11.96 million tonnes is anticipated in 2020 in refined metal supply.

The ILZSG estimates that supply will be more than adequate to meet demand, leaving a surplus of 55,000 tonnes in 2020.

Hence, lead prices may remain benign this year.

Published on February 16, 2020
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