June 18, 2020: The price of lead is likely to remain low for the next couple of years, as the metal remains in surplus, despite production decreasing by 7.1% in the first three months of 2020, the International Zinc and Lead Study Group said in its May newsletter.
Refined lead metal supply also exceeded demand by 19kt, with global refined lead metal use falling by 7.4%, mainly because of a substantial reduction in China but also with lower demand in Europe, Brazil, Japan, Korea, Taiwan and the US.
“A 7.1% decrease in global lead metal production was mainly a result of lower output in China, where the secondary sector was particularly affected by restrictive measures aimed at reducing the spread of Covid-19,” the ILZSG said. “Production also fell in Canada, influenced by the closure of Glencore’s 70kt per year primary lead smelter in New Brunswick at the end of 2019.”
Farid Ahmed, principal analyst, lead markets with Wood Mackenzie, said although its forecasts for refined lead surplus had been revised down for 2020-2021 compared with pre-Covid surpluses, there were still likely to be a couple of years before it would reduce by much.
However, looking ahead there was almost certainly going to be a demand spike as deferred needs emerged, he said.
“We have seen a huge reduction in lead demand, which has certainly been offset by markedly reduced production,” he said. “However, much of this will be demand deferral rather than demand destruction — so a chunk of this consumption will be pushed back later this year or into next.
“There will, of course, be an element of lead demand which will be lost for good, such as cancelled projects requiring industrial batteries and lower new car buying over the next couple of years.”
Where lead producers were concerned, he said, secondary smelters had either been shut down or seen their raw material supply chain frozen, with car owners and service centres not replacing dead batteries and collectors not able to go out and collect scrap.
“Primary smelters have been hit hard from so many mines being closed around the world during lockdown,” he said. “Many of these, especially in Latin America — an important lead mining region — still have mines closed. It also takes mines longer to restart than smelters, so there will be something of a ‘pull’ from primary lead producers tightening the market in the short term.
“It’s important to recognize that mined lead is the long-term supply balancing mechanism for lead markets. Secondary lead is what it is — you can’t really pull it out faster or slow down supply due to the relative inelasticity of the scrap supply chain.”
In China, lead prices briefly rose on supply shortages, said the ILZSG, but they were likely to fall again as domestic supplies recovered.
“The most active lead contract on the Shanghai Futures Exchange jumped to more than a four-month high recently at 14,620 yuan ($2.059.18) a tonne due to a lack of scrap lead caused by lockdowns in China to contain the coronavirus pandemic,” the group said.
“Lead inventories in ShFE warehouses fell to their lowest in more than 1½ years on May 8, but have risen for three straight weeks since, albeit at a marginal rate.”