Given weakness in the auto market caused by slumping sales and the overall slowdown in the manufacturing sector, lead has done well to have been so resilient.
Its strength largely reflects supply disruptions. Australia’s Port Pirie smelter, which produced 160,000 tonnes of lead in 2018, will be out of action until early November, according to reports, adding to the six-week stoppage in June-July. And disruptions at mines such as Peñasquito in Mexico and San Cristobal in Bolivia have limited mine production growth.
Global output of refined lead therefore grew by only 32,000 tonnes in the first seven months of 2019, the International Lead and Zinc Study Group estimates.
Considering the scale of weakness in the auto market - which has led automakers to cut production - lead has done well to have been so resilient.
Global visible stock levels suggest that the refined lead market is extremely tight. LME stocks fell to 69,100 tonnes on October 4 from a recent peak of 85,375 tonnes in early August although they were above July’s low of 55,475 tonnes. Shanghai Futures Exchange-listed stocks are also falling at a fast pace again; they were recently at 15,506 tonnes, down from 40,497 tonnes in early August.
Tightening physical availability leaves lead prices well-placed to rebound; we have a base case forecast for the LME cash price to average $2,131 per tonne over 2020 compared with our current forecast for the LME cash price to average $1,988 per tonne in 2019.
Despite the bullish ramifications of smelter disruptions, concerns over anemic demand growth - especially from the automotive industry - linger. Despite the easing of monetary policy and recent measures to remove restrictions on car sales by Chinese authorities, light-vehicle sales globally totaled 66.88 million vehicles in the nine months through September, a drop of 5.6% year on year. They are on course to record their first annual contraction since 2009 - at the height of the global financial crisis.
In addition, lead-acid batteries face growing headwinds from a shift by global authorities to introduce regulations designed to phase out internal combustion engines and move toward battery chemistries that are deemed to be more environmentally friendly. But this could cause supply to tighten gradually over the longer term given a lack of investment in future mine capacity that is caused by lead’s poor environmental profile.
LME lead cash price, $/t
$1,988 per tonne
2020 forecast average price
$2,131 per tonne