Lead tops $2,500/t as demand outstrips supply

The cost of lead hit a six-year high at the end of September prompting speculation as to whether its price has peaked. Lead analysts at CRU and Wood Mackenzie, however, believe that prices will rise in the medium term.

“The lead high is the result of a collision course between lead supply and demand, two years in the making,” Farid Ahmed, principal analyst, lead markets at Wood Mackenzie (pictured top) told BESB.

“Mine supply has been falling further and further behind refined lead demand since 2015, depleting stocks and increasing desperation among the smelters clamouring for supply.

“Treatment charges have plummeted. Spot prices for delivery to China were more than $100 per tonne of lead concentrate last year but now are approaching zero — such is the anxiety for smelters to fill their production capacity. Meanwhile, demand for lead batteries, mostly for automotive use, has remained robust, especially in China, with record car production figures.”

Neil Hawkes, principal consultant at business intelligence company CRU (pictured bottom), said the rise had been too high, too fast. He pointed to a mix of technical trading factors and increased demand as behind the recent surge.

“The LME three-month lead price broke through $2,500/t at the end of September and has traded above this level during the first days of October,” he said.

“Initially pulled up by the rest of the LME metals group and wider drivers, lead, together with its sister mining metal zinc, has broken away from the pack, supported by real concerns over availability during the fourth quarter and into 2018.

“Nevertheless, CRU believes that the price has now moved by too much, too soon, and expects to see a correction in the short term before lead makes a further push higher later in the quarter.

“The European market remains strong and, concerned over supply for next year, some consumers are looking to open negotiations over 2018 contract tonnages ahead of LME week.”

Ahmed says that further factors were involved in the lead supply shortage.

“Superimposed on this evolving scenario is the acute situation of a new wave of environment inspections on the industry, leading to many temporary or permanent mine shutdowns, plus the loss of North Korean lead concentrates since the new UN sanctions.

“The result? The collision course reaches impact in China, with stocks of raw materials, both for primary smelters and recyclers (scrap batteries) at critically low levels.

“The cupboard is bare as far as the Shanghai Futures Exchange stocks go, with available refined material left in warehouses equivalent to less than eight hours of Chinese lead consumption.

“As we move into the cyclic peak demand period of the northern hemisphere winter – ‘battery kill season’ — this squeeze will continue to bolster the price. With the slow recovery in mined lead supply taking until early into the next decade to reach normal levels, high lead prices can be expected to persist for the medium term.”