Lead Prices Could Keep Rising
Prices of lead are up 18% since March, and now there’s talk of limited supplies.
By MARY DE WET
April 11, 2015 12:10 a.m. ET
Lead prices are getting charged up on expectations of limited supplies of the metal.
The price of lead traded on the London Metal Exchange has rebounded from a nearly five-year low reached just last month as major producers shut down while demand for the metal continues, mainly from battery makers. Lead is an essential material in car batteries and backup power systems for businesses.
One signal that traders are worried about supplies is the recent decline in available metal at LME warehouses. Owners of lead held in those warehouses have set aside about 100,300 metric tons, leaving the proportion of metal available for trade at 52%, compared with 95% three weeks ago.
Lead prices are at $1,996.50 a ton, up 18% from their March 18 low of $1,687, according to data provider CQG.
As with most commodities, the key for the lead market is China. For years, China’s drive to industrialize and build a modern infrastructure has required massive amounts of lead and other metals. While that demand is now cooling as the economy shifts toward the service sector and domestic consumption, China will still need lead. “Lead has a variety of uses throughout the economy and is used in both high- and low-end manufacturing,” analysts at Barclays Bank said in a recent note. The bank expects car-battery sales to make up the bulk of China’s demand for the metal and forecasts that the nation’s lead consumption will grow 3% per year through 2020.
China is both the largest user and producer of lead, accounting for about 45% of the world’s demand for the metal and its output last year, according to the International Lead and Zinc Study Group.
Still, worries about China’s growth have depressed base-metals prices this year, and lead wasn’t immune. China’s economy expanded 7.4% in 2014, the slowest pace in more than 20 years.
Lead prices fell below the costs of production for some smelters, causing them to reduce their output of the metal, particularly in China, analysts at Commerzbank said in a recent note.
“After the Chinese New Year festivities, during which the country’s economic activity came to a standstill for a week, other lead smelters did not even fully scale up their production again,” the Commerzbank analysts said. “According to industry sources, production losses so far are estimated to total an annualized figure of 80,000 tons.”
THE PULLBACK IN Chinese production comes at a time when zinc mines are also closing. Lead is usually found in ore with zinc.
“Century mine in Australia will be removed from the market in the third quarter of 2015 -- the last major mine to be shut for the time being -- because it is exhausted,” the Commerzbank analysts wrote, adding that new mines aren’t replacing the decommissioned ones at a sufficient rate because zinc prices are low.
“What is more, a number of the projects currently at the development stage are running behind schedule,” the analysts said, pointing to future supply problems for lead and zinc. The decline in production is likely to push prices higher. Commerzbank expects lead prices to reach $2,000 a ton by year end.
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