LEAD & ZINC CONF: ‘Lead doesn’t have a story of its own in 2018’ - Macquarie

Lead’s performance during 2018 is totally reliant on its sister metal zinc, with it lacking any clear direction of its own, an analyst said at Metal Bulletin’s Lead & Zinc conference in London on Thursday March 22.

“We think all base metals will have a better second quarter - but lead does not have a story of its own,” Vivienne Lloyd, senior analyst at Macquarie Group, told conference attendees.

“Lead will not be able to move higher if the others do not and it is heavily reliant on its closest sister metal zinc,” she added.

Lloyd noted that lead’s outlook for the upcoming year does not have any strong fundamentals of its own, meaning it is strongly reliant on the performance of its peers.

In the near term the metal is reliant on all base metals - especially zinc and copper - but looking forward it will mostly be reliant on zinc.

The connection between lead and zinc is usually very close - with the metals following each other’s trends. But zinc recently has flown ahead of its sister metal.

The price differential between lead and zinc on the London Metal Exchange has moved to its widest in over a decade, with lead lagging significantly behind.

Lloyd believes this wide spread will tighten throughout the year: “Lead’s fortunes will be tied to zinc. We see the market balancing and zinc sliding down again. But they will be closely linked.”

“It is hard to get away from lead’s bleakness and the fact people are not really interested in it. We have seen punchy stock movements for copper this year - we did not see that for lead,” she added.

Overall Q2 outlook
“We feel that there is a huge amount of positivity towards commodities,” Lloyd said, pointing to the optimism surrounding last year’s LME Week in London and the rise of the electric vehicle story, which has seen larger investment funds looking at commodities and wanting to get involved.

“People are more interested in commodities at the moment. Things haven’t exactly gone to plan so far this year - there was a strong expectation that after Chinese New Year (February 15-21) we would see the Chinese come roaring back in and metals would pick up because of it,” Lloyd said.

“But in fact what we have seen is a slow return to the market place - and base metals have been slightly punished in the first quarter,”

But the Macquarie analyst believes the base metals will fare better in the second quarter.

“The Chinese market’s activity levels will pick up - and we will see things look stronger for the complex.”

“At the moment our view is we think zinc will have a good second quarter - and it is really import this happens so that lead can follow,” she concluded.

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