Lead byproducts may not be Chinese smelters’ silver lining: 2022 preview

After navigating the rough waters of 2021, lead smelters will likely have another tough year ahead

While primary lead smelters in China are keeping their hopes high on generating more profits from the recovery of byproducts amid losses in the smelting of the base metal, some are skeptical about whether this would be enough of a lifebuoy for them to keep their heads above water in 2022.

Lead smelters have been navigating rough waters in 2021, and they do not have a lot of optimism for next year.

“A major Asian lead smelter that also produces bulk amounts of silver is now planning to extend its maintenance period for next year because they expect low lead-processing charges,” a lead producer source said.

White silver, minor metals such as antimony and bismuth, as well as sulfuric acid are common byproducts of lead smelting.

This year, the sale of byproducts has greatly offset the losses that lead smelters incurred in the smelting of the base metals alone, which emerged as a combination of low lead concentrate treatment charges, high battery scrap prices and more stringent environmental controls in China.

For instance, the export arbitrage window for silver opened in China in the first half of this year, allowing lead smelters to capitalize on the price difference of silver between the international and domestic markets. China sold three times as much silver ingot overseas during this period than a year earlier.

Silver tolling has also become a justification for access to cheaper credit. This revived several mothballed lead smelters in Hunan province this year.

Over the past few months, China’s export arbitrage window for silver was largely closed, though it is now open for certain market participants.

The Ag(T+D) silver contract on the Shanghai Gold Exchange closed at 4,788 yuan per kg – or $21.32 per oz – on December 24. The contract has been experiencing a gradual decline since peaking at 5,911 yuan per kg on May 18.

This is $1.57 per oz lower than a closing price of $22.89 per oz for the equivalent contract on the London Bullion Metals Association (LBMA) on the same day.

“Whether the silver export activity makes economic sense shall depend on the premium figures of individual transaction. It is hard to draw a stable stream of income from it,” a trader said.

Meanwhile, sulfuric acid – another major byproduct of lead smelting – is also unlikely to offer a stable buffer for lead smelters.

Prices for sulfuric acid have slipped to 420-450 yuan ($940-1,007) per tonne in central China’s Hubei province – where it is most actively traded – from more than 1,000 yuan per tonne in March this year, according to an analyst.

“The acid price has fallen by more than half and I believe it has already peaked,” a second producer source in southern China said.

“No one had expected that the price [of sulfuric acid] – which was close to zero before – could reach a high of over 1,000 yuan per tonne early this year,” the source added.

But despite the uncertainties of byproduct revenues and the principal lead smelting business, several lead smelters still prefer to keep their furnaces running.

“Unlike its sister metal zinc, [where] most smelters are owned by the state, a majority of lead smelters are private, so they would face issues with their credit lines if they cannot maintain their operations,” a second lead trader said.

By December 28, the Shanghai Futures Exchange’s front-month lead contract was up by only 5% from the start of the year, lagging behind other base metals such as zinc and copper, which have gained 19-20%.

This means that lead smelters higher production costs are unlikely to be transferred to buyers via a higher output price.

What to read next
The global copper market has finally received the widely anticipated news that imports to the US will be tariffed from August 1. The finer details of the tariffs, including their scope, and whether key copper-exporting nations like Chile, Canada and Peru will be exempt, remain unclear.
LME copper prices took a significant hit following US President Donald Trump's announcement of a potential 50% tariff on copper imports. The uncertainty surrounding the timeline and implementation of the tariff has left market participants hesitant, with analysts noting its immediate impact on price momentum and trading activity.
Fastmarkets has launched MB-AL-0424 Aluminium P1020A premium, fob Indonesia, $/tonne on July 9 due to an expected increase in Indonesia-origin aluminium exports. MB-AL-0424 Aluminium P1020A premium, fob Indonesia, $/tonneQuality: P1020A or 99.7 % Minimum Al purity (Si 0.10% max, Fe 0.20% max) in line with LME specifications. Ingot, T-bar, sowQuantity: Min 500 tonnesLocation: FOB IndonesiaTiming: […]
To increase the transparency of our methodology, Fastmarkets clarifies that the quotation period of the MHP nickel payable indicator is the month of delivery, or the month M. Any data points Fastmarkets received otherwise will be normalized to the M month based on the monthly spreads of the prevailing exchange-traded Class-1 nickel reference price, or […]
'Probably miscalculated’ assumptions at Kakula mine force Ivanhoe to overhaul entire Kamoa-Kakula complex, explains CEO Marna Cloete.
Following an initial consultation with the market, Fastmarkets is proposing to:  The new specifications would be as follows, with amendments in italics: MB-CU-0002 Copper grade 1 cathode premium, ddp Midwest US, US cents/lb Quality: Grade A 99.9935% min copper cathode conforming to LME specifications BS EN 1978:2022 – Cu-CATH-1 or Grade 1 Electrolytic Copper Cathode ATSM B1115-10 Quantity: Min […]