August 14, 2018 / 11:46 AM / 3 months ago

Lead shortages, seasonally strong demand suggest possible price revival

LONDON (Reuters) - Global trade disputes and political tensions have sent prices of battery metal lead to 14-month lows but tight supplies, shortages and seasonally strong demand for the coming northern winter suggest a possible change of tack.

FILE PHOTO: An excavator loads a truck at an area being prepared to be used by the lead and zinc mine Castellanos in Minas de Matahambre, Cuba, July 20, 2017. Picture taken July 20, 2017. REUTERS/Alexandre Meneghini/File Photo - RC159CCA39E0

The possibility of protracted trade tensions between the United States and China, and worries about economic growth pushed lead CMPB3 on the London Metal Exchange down to $2,074 a tonne on Aug. 6, its lowest since June last year.

A recovery attempt stalled as investors shunned exchange-traded industrial metals after the Turkish lira hit record lows on Monday and revived fears of an emerging market crisis. Lead is now around $2,110 a tonne.

(GRAPHIC: Lead prices - reut.rs/2Oz9U9y)

“Mine supply is barely growing, we are forecasting a 0.4 percent increase to 5.4 million tonnes this year,” said Wood Mackenzie lead analyst Farid Ahmed. He expects refined a lead market deficit of 136,000 tonnes this year following a 82,000 tonne shortfall last year.

(GRAPHIC: Lead market balance - reut.rs/2Oyzyen)

“Part of the problem is new projects and restarts of idled existing mines take time,” Ahmed said. “Rises in lead concentrate production have been pretty woeful over the past few years and miners are only now starting to catch up.”

Projects that will deliver more lead include Vedanta’s VED.L Gamsberg mine in South Africa and three Australian projects, Dugald River owned by MMG (1208.HK), another mine run by New Century Resources (NCZ.AX) and Glencore’s (GLEN.L) Lady Loretta mine.

However, analysts say the focus for new projects was on zinc, which surged nearly 150 percent to $3,595 a tonne between January 2016 and February 2018. Lead is found in the same ore as zinc.

“Mines being developed are more zinc rich,” Ahmed said, adding that this was because of the metal’s price rise which has made obtaining financing easier for such projects.

Low lead concentrate supplies can be seen in dwindling treatment charges — the amounts mining companies pay smelters to turn concentrate into refined metal.

Treatment charges on the spot market at $10-$20 a tonne in July compare with averages of $27 last year and $111 in 2016, according to CRU Group.

(GRAPHIC: Lead spot TCs - reut.rs/2MErj04)

“The concentrate market for lead has remained tighter than expected, that’s why treatment charges haven’t moved in favour of smelters,” said CRU’s lead analyst Neil Hawkes.

An environmental clampdown in top producer China, which has targeted polluting industries such as mining and smelting, also means lower supplies of refined metal and recycled lead.

(GRAPHIC: - China lead output - reut.rs/2Oy8U5t)

Recycled metal accounts for more than half of global supplies estimated this year at nearly 13 million tonnes, of which 80 percent is used to make batteries, mainly for autos, which is where the seasonal aspects come in.

“Ahead of the fourth and first quarters, the cold winter months, you get lead and battery restocking,” said Societe Generale analyst Robin Bhar. “Lead doesn’t follow the business cycle all the time.”

(GRAPHIC: US growth vs lead prices - reut.rs/2KTfp0x)

The winter months are when battery replacement demand is at its highest, while the summer lull can give a false impression of weak demand.

Demand growth is forecast at around two percent this year and next, little changed from last year.

Reporting by Pratima Desai; editing by David Stamp

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