No sharp increases for lead in 2016

Increase in production to more than offset demand across the globe



From over $2,000 a tonne in end April-early May 2015, international lead prices have been cooling off for a little more than a year now. Prices on the London Metal Exchange have dropped by about 15-20 per cent since then to around $1,700- 1,800 a tonne now. This is amongst the lowest levels seen in the last five years. LME prices had touched a high of almost $2,900 a tonne in April 2011. In India, MCX spot prices too have mirrored international trends, with prices currently sliding to around ₹115 a kg from ₹130-137 a kg in end April-early May 2015.

Why prices dropped

A major reason for the fall in prices was the lower-than-expected increase in demand for lead in 2015. According to the International Lead and Zinc Study Group (ILZSG), in 2015, global usage of refined lead was expected to increase 1.1 per cent over 2014 to 11.05 million tonnes. But actual demand shrank by 8.3 per cent to 10.06 million tonnes.

With China accounting for about 40 per cent of global lead usage, lower consumption in China due to the economic slowdown hurt demand. While refined lead usage in China was expected to go up by a modest one per cent in 2015, it actually ended up much worse. From 4.7 million tonnes in 2014, Chinese usage dropped by a steep 17 per cent to 3.9 million tonnes in 2015. Demand in the US, the other big consumer of lead after China, faltered too.

A drop in global refined lead production did not support prices either. This is because the 8.3 per cent fall in usage was higher than the 7.8 per cent fall in production. As a result of this gap, 2015 actually witnessed a surplus production of 63,000 tonnes.

India was one of the few countries that reported increase in both refined lead production and usage in 2015 due to increased demand for telecom, automotive and UPS/Inverter batteries. Telecom players embarked on adding towers after a lull, thanks to the need for improved voice quality and increasing mobile data usage; a pick-up in automobile sales in the last one-two years and frequent power shortages contribute to the higher demand for batteries as well.

As per the latest available data, global trends of 2015 have continued into the first quarter of 2016 as well. In January-March 2016, world refined lead metal supply exceeded demand by 29,000 tonnes.

Outlook

ILZSG anticipates that global demand for refined lead metal will rise by about 2 per cent in 2016 (over 2015). Increased demand for auto and telecom batteries in China is expected to partially offset a reduction in demand from the e-bike market, which has shifted to lithium ion batteries.

European demand is forecast to grow by 3.5 per cent while a 1 per cent recovery is anticipated in the US. Growth is also forecast in Asian countries such as India, Indonesia, Japan, and Thailand. But global production is also expected to increase more than adequately, with the ILZSG estimating a surplus of 76,000 tonnes for refined lead in 2016.

Hence international lead prices may not see sharp increases for the rest of 2016.

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