Why, apart from the fact they are both trading at a little over $1000/ton this week would we lump lead and zinc together in the same article? They are used in different applications, driven by different market dynamics. Zinc is used primarily in galvanizing and alloying to form brass. Lead is used mainly in batteries and solders. Zinc is driven by construction whereas lead by automotive and electronics. However, primary lead is largely produced as a by-product of zinc and/or copper mining (although both metals have significant sources from recycling). So apart from their current pricing the other reasons they deserve to be joined is production cut backs for zinc mining, which is in massive surplus. So zinc mine cutbacks directly impact lead supply. Zinc stocks have more than doubled this year to 193k metric tons illustrating the over supply situation. Lead stocks on the other hand nearly doubled by the middle of the year but have since fallen back to stand at 42k metric tons, lower even than at the beginning of the year.
While neither construction or automotive can be said to be doing well, affecting both metals, boom or bust, drivers still need to change their batteries and lead has also benefited from the growth in electric bikes in developing countries. Electric bikes are hungry consumers of lead batteries.
So while zinc and hence lead mines have been gradually scaling back, demand for the heavy metal has remained relatively well supported. Will that stop lead from dropping below $1000/ton? No probably not is the answer but it should limit the downside both in terms of how much further it could go and for how long. Supplies from recycling remain strong and so the balance is a fine one but of the two, lead certainly has more going for it than zinc. For zinc the cutbacks so far have been no where near enough and we would not be surprised to see prices into the mid 900’s/metric ton by early next year. Vale and Xstrata’s closure/idling announcements late this week have temporarily arrested the fall but for how long remains to be seen.
Good news for consumers but with one caveat, as mines are closed and smelters idled the market will eventually come into balance although not until well into 2010 according to the ILZSG by which time construction demand due to infrastructure projects may be well underway and the upswing, at least for zinc, could be strong.