Lead prices rise on sup­ply short­fall

Chi­nese slow­down, higher-than-ex­pected sup­ply short­age move prices up

The Hindu Business Line - - COMMODITY WISE - PARVATHA VARDHINI C ISTOCK.COM/MICHAKLOOTWIJK China slow­down causes

Lead prices that had cooled off over the past year have started slowly inch­ing up again.

Un­til early 2018, in­ter­na­tional lead prices on the London Metal Ex­change had showed an in­creas­ing trend, mov­ing from a multi-year low of $1,600 per tonne in early 2016, to $2,500 a tonne by Oc­to­ber 2017, and to $27,00 a tonne in early 2018.

How­ever, prices de­clined af­ter that, touch­ing a low of $1,885 a tonne in end-Novem­ber 2018. Prices are slowly heat­ing up again and are now hov­er­ing at $2,000-2,100 a tonne.

In In­dia, MCX spot prices have mir­rored in­ter­na­tional trends in the above pe­ri­ods. Do­mes­tic lead prices stand at about ₹150 a kg now, mov­ing up from the low of ₹135 a kg from end-Novem­ber last year.

What’s driv­ing prices?

A ma­jor rea­son for the de­cline in prices for most of 2018 was the slow­down in eco­nomic growth in China.

China is the big­gest con­sumer of lead, ac­count­ing for about 40 per cent of the global us­age. China’s fo­cus on in­fra­struc­ture projects had pushed up the de­mand for in­dus­trial met­als in­clud­ing lead in 2016 and 2017.

Be­sides, the grow­ing pop­u­lar­ity of e-bikes and e-trikes in China that use lead-acid bat­ter­ies also trig­gered huge de­mand for lead in that geog­ra­phy.

How­ever, the trade dis­pute with the US, a drive to cut the coun­try’s high debt and weak do­mes­tic de­mand slowed eco­nomic growth in China last year.

For the full year 2018, the econ­omy ex­panded 6.6 per cent, the slow­est since 1990.

But de­spite the Chi­nese slow­down, higher-than-ex­pected sup­ply short­age is prob­a­bly mov­ing up lead prices now.

Lat­est avail­able data from the In­ter­na­tional Lead and Zinc Study Group (ILZSG) in­di­cate that global de­mand for re­fined lead metal ex­ceeded sup­ply by 95,000 tonnes dur­ing the first 11 months of 2018

Be­sides, ILZSG fur­ther es­ti­mates that de­mand for re­fined lead metal will ex­ceed sup­ply by 1.23 lakh tonnes in 2018.

This rep­re­sents a change to the pre­vi­ous pre­dic­tion — in April 2018 — of only a 17,000tonne deficit in the global lead mar­ket.

Ini­tially, lead-mine pro­duc­tion was pre­dicted to rise 4.2 per cent in 2018 (over 2017) to 4.90 mil­lion tonnes. But mine pro­duc­tion un­til Novem­ber 2018 has come in only at 4.195 mil­lion tonnes, a fall of 2 per cent over the same pe­riod in 2017.

This was mainly due to lower out­put in China, Kaza­khstan, Peru, South Africa, Swe­den and the US. Con­se­quently, growth in re­fined lead metal out­put, too, dropped.

World re­fined lead metal out­put was ex­pected to rise 3.8 per cent to 11.88 mil­lion tonnes in 2018 (over 2017). But un­til Novem­ber, the out­put stood at 10.67 mil­lion tonnes, less than 1 per cent higher than 2017.

Out­look

Go­ing by the out­look for the full year 2019 put out by ILZSG in Oc­to­ber 2018, sup­ply of re­fined lead metal is ex­pected to be ad­e­quate. Global de­mand for re­fined lead metal is fore­cast at 11.79 mil­lion tonnes in 2019. Although us­age in Europe and the US is ex­pected to move up 1.8-2.5 per cent, a 1.3 per cent fall in us­age in China is an­tic­i­pated in 2019. As against this, world re­fined lead metal pro­duc­tion is ex­pected at 11.84 mil­lion tonnes in 2019.

Ac­cord­ing to ILZSG, pro­duc­tion in 2019 will ben­e­fit from higher out­put in Europe and the US where out­put is fore­cast to grow 3.9 per cent and 2.4 per cent, re­spec­tively. Re­fined lead sup­ply in Aus­tralia, China, In­dia and South Korea is also ex­pected to in­crease.

How­ever, the tight sup­ply con­di­tions that have come to light since the re­lease of this fore­cast could con­tinue to push up prices. Be­sides, though a fall in us­age is ex­pected in China, fur­ther stim­u­lus mea­sures to give a leg-up to eco­nomic growth could heat up de­mand for lead from China, too. Drive to cut coun­try’s high debt

Weak do­mes­tic de­mand

Trade dis­pute with US

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