Lead’s rally from multi-year lows hit November 2015 were on the back of major zinc-lead mine shutdowns and strong demand from the automotive sector, responsible for the bulk of demand.
A new report from BMI Research says positives for the market will largely stay in place leading to a widening albeit relatively small market deficit through 2021.
BMI, a unit of rating agency Fitch, forecasts the lead market will be minimally undersupplied this year the back of persistent supply cuts and growing demand from second-tier consumer countries but the shortfall could quadruple to 70,000 tonnes in 2021.
Mined lead production will continue to feel the effects of a global slowdown in mining capital expenditure, which will have a knock-on effect on refined lead supply.
China produces nearly half the world’s mined lead and is responsible for some 40% of global refined lead output. The country’s production of refined lead will stagnate on the back of Beijing’s pollution clampdown on heavy industry and growth will be muted at best elsewhere. China’s imports of lead was up threefold last year and will slow going forward, but an increasing refined deficit will support import levels.
Thanks to high recycling rates (lead’s main application is in batteries and in the US for instance recycling rates are close to 100%) mining makes up less than half of annual global supply.
On the demand side Chinese lead consumption growth of 11% in 2016 will slow dramatically as its red hot auto market cools, but India will take up some of the slack with growth rates in high single digits for the next five years.
BMI’s autos team forecasts a slowdown in vehicle production growth in China from 13.4% in 2016 to an average of 5.9% from 2017–2021, providing support to lead demand. Globally vehicle output is also projected to expand from an annual average of 2.8% from 2012–2016 up to 2.9% during 2017–2021.
The global stocks-to-use ratio will gradually decline from 5.7% in 2017 to 3.6% in 2021 says BMI.
Tightening conditions are already evident this year with LME warehouse stocks falling by 10% over the past month. Lead was drifting lower on Tuesday at $2,253 a tonne ($1,022 a pound), but the metal is holding onto year to date gains of 13.6%.