Lead demand is set to pick up in 2013, and that could lead to substantially higher prices, according to a raft of new reports on the metal’s prospects for the coming year.
The first three quarters of 2012 were rocky for most resources due to the ongoing Eurozone debt crisis and slowing Chinese economy, but lead has shown strength: spot prices rose as high as $2,315 per metric ton on the London Metal Exchange (LME) in early October, up from $1,980 at the beginning of the year. Lead has since drifted down to around $2,025, according to data from Metal-Pages.
Gains in the year ahead are likely to be primarily driven by rising demand for lead-acid batteries, which account for 80 percent of global lead consumption. At the same time, a number of analysts see supplies tightening due to a lack of new mine production.
“We’re now at the inflection point where lead moves from surplus to deficit,” BNP Paribas metals strategist Stephen Briggs recently told Bloomberg. “There’s been virtually no investment in lead for lead’s sake for 30 years. We haven’t yet seen the real tightness.” In September, BNP reiterated its 2013 lead price forecast of $2,550 per MT.
Barclays believes “downside is limited for lead prices”
Investment banking firm Barclays released its lead forecast in mid-October. While it notes that prices have slipped since their highs earlier in the month, the bank’s analysts feel lead likely doesn’t have much further to fall. “From a fundamental perspective, Barclays believes the downside is limited for lead prices, with our current projections pointing to a tightly balanced market in Q4 this year as well as 2013 as a whole,” they wrote in a release quoted by Commodity Online. However, in light of the sharp run-up in lead prices, Barclays does see some further near-term risk as traders take profits.
The firm also sees lead supplies tightening as LME inventories have declined 25 percent since the middle of the year. Its report points to high levels of cancelled warrants, which currently represent about 40 percent of LME lead stocks. “Cancelled warrants” refers to lead that has been purchased, but has not yet shipped from the exchange’s warehouses.
Morgan Stanley, too, is forecasting a supply deficit next year. In its latest report, the investment bank said demand will exceed supply by 47,000 MT in 2013. Morgan sees mine production rising 5.7 percent, the lowest level since 2009. As a result, the bank is forecasting an average 2013 lead price of $2,425 per MT. And it doesn’t see the lead market returning to surplus any time soon; it has predicted shortfalls for the next four years.
Chinese lead supplies are also dropping fast
The story is much the same in China, which is the world’s largest producer and consumer of lead.
According to a recent report from SMM Information & Technology, inventories in the country’s Guangdong and Shanghai provinces declined to around 100,000 MT in August. That’s the lowest level since February 2010; it’s also down sharply from the 300,000 MT seen in August 2011.
“Compared with other base metals, lead has a relatively good fundamental picture,” analyst Hu Yongda of Beijing Antaike Information Development told Bloomberg. He also forecast that Chinese lead demand for all of 2012 will jump 10 percent to an all-time high 4.5 million tons.
Reconstituted Chinese battery industry will further spur lead demand
Part of that increase will come from the country’s lead-acid battery industry, which is recovering after the government shut down large numbers of factories in 2011 in the wake of widespread reports of lead poisoning. As part of a wide-ranging crackdown, the government inspected 1,930 battery plants and suspended operations at 1,015 of them.
Now that the government has brought in stricter environmental regulations, more of these factories are reopening. That’s a big part of the reason why the International Lead and Zinc Study Group (ILZSG) forecast a 4.8 percent increase in Chinese lead consumption in 2012 and a 4.7 percent rise in 2013.
The organization, which released its latest figures on October 16, sees an ongoing oversupply of lead on a global basis, albeit a relatively small one. For 2013, the ILZSG is calling for a 3.3 percent rise in refined lead metal demand, to 11.15 million MT. That’s against production of 11.32 MT, up 3.8 percent from 2012.
Cars and e-bikes drive lead consumption higher
Here are two more factors that many analysts see supporting prices in the medium to long term.
- Skyrocketing e-bike sales. Electric bicycles continue to gain popularity, particularly in emerging markets like China. E-bike manufacturing now accounts for 39 percent of China’s overall lead consumption, ahead of cars, which account for 22 percent. Worldwide sales of e-bikes are expected to exceed 30 million this year, with China accounting for 92 percent of that figure.
- A continued rebound in automobile demand. North America and Asia continue to lead an ongoing recovery in car sales as consumers take advantage of low interest rates to replace their aging vehicles. South American sales are surging as well, thanks to a recent $10-billion stimulus package in Brazil, according to a recent report from Canada’s Scotiabank. The bank is calling for sales of 61.96 million cars and trucks worldwide for all of 2012, up 5.2 percent from 58.89 million in 2011.