Most base metals are looking pretty uninspiring – the case for higher copper, aluminum or nickel prices is hard to make.
Supply is in surplus and demand remains weak; in such a situation, investor sentiment is negative and prices probably have more downside potential than up.
Lead, however, is another story.
LME stocks have been coming down this year, from some 300,000 tons at the start to about 230,000 tons now. Nor is this the transfer of warranted lead to off-market locations; the forward curve, though in backwardation, is not supportive to the same extent as aluminum or zinc to the stock and sale trade.
There is some disagreement over the current supply picture.
Reuters recently observed that output will fall short of demand by 26,000 tons next year, from a surplus of 15,500 tons this year. The same article quotes International Lead and Zinc Study Group (ILZSG) data saying the lead market moved into a deficit of 16,000 tons in the January-to-March period, with that deficit growing steadily to 58,000 tons during January-to-August.
But the World Bureau of Metal Statistics estimates the lead market was already in deficit this year by 248,000 tons from January to August, prompted in part by a 9.6% fall in lead mine production due to lower output in Poland and Canada. China, of course, remains the largest consumer at some 42% of refined lead consumption and the largest producer. Growth in Chinese demand, though, has been roughly met by growth in Chinese refined production, according to Reuters.
Apart from tight mine supply, the crux of the issue seems to be that low prices have depressed scrap collections and hence secondary lead production this year. About 70% of the 9.4 million tons of lead produced annually is made by recycling scrap batteries, usually from cars, the article states.
Premiums for standard London Metal Exchange-grade secondary lead paid over the lead cash price were quoted as high as $100 a ton in Europe, steady since May, while higher grade 99.985% purity material is being quoted as high as $170 a ton. Scrap availability is limited in part due to prices, but also because last year’s winter was milder than expected, slowing the replacement of auto batteries. As a result, smelters have struggled to get enough metal and physical premiums have risen.
Lead Price Forecast
Analysts in a Reuters poll are expecting the metal to rise next year by 6% from current cash prices.
Based on the supply market outlined above, one has to say lead has more chance than the other base metals of bucking the trend and posting gains as the winter season sets in and battery demand rises in the Northern hemisphere.