Commodity Analysis

Lead outlook grey on cooling prices

Parvatha Vardhini C | Updated on January 24, 2018 Published on March 29, 2015

In 2015, prices will be reined in by weak demand and adequate production



International lead prices have been cooling off for almost a year now. From about $2,200-2300 a tonne in July 2014, prices on the London Metal Exchange have dropped by over 25 per cent to around $1,800 a tonne now.

This is amongst the lowest prices in the last five years. LME prices had touched a high of almost $2,900 a tonne in April 2011. Back at home in India, MCX futures prices too have mirrored international prices. From about ₹130-140 a kg in mid-2014, prices have come down to around ₹110 a kg currently.

Why prices fell

A major reason for the fall in prices was the lower than expected demand for lead in 2014.

According to the International Lead and Zinc Study Group (ILZSG), in 2014, global use of refined lead was expected to increase by 4.4 per cent to 11.73 million tonnes over 2013.

But actual demand remained subdued, growing only by 1.4 per cent to 11.28 million tonnes. With China accounting for 40-50 per cent of global lead usage, slower consumption in China curtailed demand. The Chinese economy grew at its slowest pace in 24 years in 2014; hence, while refined lead usage in China was expected to go up by 7.4 per cent in 2014, it actually moved up only by 2 per cent.

Similarly, as against expectations of a modest increase in demand in the US, usage actually shrank by 1.5 per cent. However, major producers such as Europe (Belgium, France and Italy), China and Republic of Korea reported a 60-80 per cent increase in refined lead production. As a consequence of higher production and lower demand, while a shortage of 49,000 tonnes of refined lead was expected, 2014 witnessed only a minor shortage of 5,000 tonnes.

Boost for battery makers

The fall in lead prices has been good news for battery manufacturers in India.

Although lead is used for cable sheathing, making ammunition, pigments, etc., about 80 per cent of the end-use is in batteries. Applications include both lead-acid batteries used for vehicles and industrial/UPS/inverter batteries used in homes, IT industry, telecom towers and railways. Cooling lead prices, for instance, have provided additional room for listed battery maker Exide Industries to improve its profit margins. From 11-12 per cent currently, it is targeting to expand its operating margins to 15-16 per cent in the next few quarters.

Benign outlook

Lead prices might continue to trade at current levels, thanks to expectations of soft demand from top consumers.

Despite a further increase in automotive production and an expansion in the construction of mobile phone base stations (towers), Chinese demand in 2015 is expected to be a repeat of 2014. Usage in the US is expected to be flat while demand from Europe is expected to show only a modest increase. The ILZSG expects refined lead demand to be at 11.56 million tonnes this year.

Against this, production is expected to grow to 11.54 million tonnes, keeping both demand and supply almost on par. An inventory of 0.58 million tonnes as at end 2014 is also available which could result in a modest surplus in 2015. Hence, benign raw material costs for the battery industry in India are here to stay.

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