Lead, Production, Demand and Prices – Part One

At the end of 2009, we wrote on the strength of the lead market and reported predictions from several quarters that saw lead prices as high as US$2700 per ton by the middle of the year. Well five months later and the lead market is looking a little different. Prices have dropped from $2500 per ton to a low of $1875 per ton although they have recovered a little to around $1975 per ton today. Meanwhile stocks have continued to rise as this Reuters graph shows to around 185,000 tons on the LME and western world commercial stocks reached 408,200 tons according to Reuters report.

The lead market is undoubtedly in surplus.   The International Lead Zinc Study Group ILZSG reported last month that they expected the market to be in oversupply to the tune of 100,000 tons this year. At the same time, Chinese production is expected to rise. Reuters reported that dozens of small producers in China’s main production center around Geiju are expected to come back into the market in June when power and water supplies improve, potentially adding   up to 33,000 tons per month of production, equivalent to a boost of 14% to China’s production.

Around the world producers are continuing to bring capacity back on stream or to increase production form existing facilities. In Japan smelters are reported to have increased production by about 8% from Q3, 2009 and some 17% from 12 months ago.

Although lead was caught up in the euphoria of rising copper prices last year and in Q1 this year, the fundamentals of over-supply are becoming more and more compelling as this year has unfolded.

We will review demand and expected price movements in Q3 in a follow-up post.

–Stuart Burns

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