Raw Input. Supply deficit keeps lead hot

As with many other metals, lead prices also headed northwards in 2017. From around $2,000 a tonne in the beginning of 2017, prices on the London Metal Exchange have moved up by over 20 per cent to around $2,400 a tonne now.

In fact, lead prices have shown an increasing trend since early 2016 itself, where they hovered around $1,600 per tonne, a multi-year low.

In India, MCX spot prices have mirrored international trends, with prices presently ruling around ₹160 a kg compared with ₹135 a kg in the beginning of the year. This trend of firming up of prices is here to stay, as global demand is forecast to exceed supply in both 2017 and 2018.

One of the reasons for the price rise is the higher-than-expected increase in demand for lead so far in 2017 (over 2016). Data from the International Lead and Zinc Study Group (ILZSG) indicates that the global demand for refined lead metal exceeded supply by 1.19 lakh tonnes during the first eight months of 2017.

Global supply-demand equations have turned unfavourable primarily due to the strong demand from China. China is the biggest consumer of lead in the world and accounts for about 40 per cent of the global lead usage.

In end-2016, Chinese lead usage was forecast to grow by only 1.1 per cent in 2017 (over 2016); it was revised to a higher 4.3 per cent in early 2017. As per the latest report of the ILZSG, Chinese demand has grown by 12.4 per cent so far in 2017.

China’s focus on infrastructure projects has pushed up the demand for several industrial metals, including lead, since last year. China is spending over $720 billion from 2016 to 2018 on projects in the transport sector.

Besides, the growing popularity of three-wheeled e-trikes in China (which use lead-acid batteries) has brought back demand for lead, according to the ILZSG.

Other countries across the globe too have witnessed strong growth in demand so far in 2017. After increasing by a robust 9.8 per cent in 2016, usage of lead metal in Europe was expected to remain flat in 2017. But usage in Europe has grown at a faster 3.5 per cent so far this year. Usage in the US has moved up by 3.1 per cent, as against the forecast 1.9 per cent increase.

Had global refined lead production dropped in 2017, the demand-supply gap could have been wider and the rise in prices, much sharper. However, while Australia saw a sharp decline in lead mine production, higher output in China, India and Kazakhstan has helped global mine production rise by 6.8 per cent so far in 2017; consequently global refined lead metal output has moved up by 4.1 per cent. This has somewhat helped meet the higher demand, though not entirely.

In the months to come, the trends seen so far are expected to continue. According to the ILZSG, lead mine supply is expected to rise by 5.6 per cent to 5.06 million tonnes in 2017 and 1.1 per cent to 5.11 million tonnes in 2018.

The rise in 2017 will be mainly due to higher output in China, India, Kazakhstan and Canada. In 2018, mine production will benefit from the impending start-up of a mine in Cuba, the recent commissioning of Eldorado Gold’s Olympias mine in Greece and increased output in Mexico.

The mine output of refined lead metal is forecast to rise 3.7 per cent to 11.58 million tonnes and 1.6 per cent to 11.77 million tonnes in 2017 and 2018, respectively.

On the other hand, the ILZSG forecasts global demand to exceed supply in both these years, thanks to strong demand from China.

China’s imports of refined lead metal in 2017 are expected to exceed exports for the first time since 2012 with the extent of the difference at a sizeable 95,000 tonnes.

Thus, global demand for refined lead metal will exceed supply by 1.25 lakh tonnes in 2017.

Again, in 2018, a deficit of 45000 tonnes is expected. Hence, lead prices cannot be expected to cool off in the near to medium term.

COMMENT NOW