While everyone is debating the future of copper, gold and
silver after the dramatic mid-April sell-off and recent bounce
to the upside, heres an investible metal you seldom hear
Lead the stuff of auto batteries and
bullets is in vogue with the metals analysts, with
a raft of bullish price projections owing to exceptionally
tight supply and healthy auto sales in the U.S. and China.
All of the metals both precious and industrial
are down substantially since the start of 2013, but lead has
been one of the worst performers. As of May 13 the quote on a
three-month futures contract on lead at the London Metal
Exchange was $2,008 a ton, down 13.8 percent year-to-date. And
yet, going into the second half, Bank of America Merrill Lynch
metals strategist Michael Widmer, based in London, believes
that lead has some of the strongest fundamentals among
the base metals.
Widmer is the most bullish, predicting that lead, which has
seasonal demand, will rise to $2,550 a ton during the third
quarter and will drop back to $2,400 a ton during the fourth
quarter. What you find is that normally, there are two
key demand seasons, winter and then summer. It has to do with
very hot and very cold weather, which damages vehicle
batteries, he says, noting that auto batteries account
for about 80 percent of the demand for lead. The post-summer
peak is in September, when battery producers
restock, he said, while, typically, the second quarter is
Widmer is forecasting a full-year average of $2,363 a ton
for 2013, higher than both the commodities research team at
Goldman Sachs and Société
Générales Robin Bhar, the
firms head of metals research in London, with reports
from both projecting $2,300 a ton as their 2013
Générale is in agreement with $2,400 a ton
as a good number for the fourth quarter, but its third quarter
number is lower than BofA Merrills, at $2,250 a ton.
Goldman has a more conservative near-range forecast of $2,150 a
ton over the next three to six months.
There are a number of reasons why the demand for lead is
rising, while growing the supply is problematic.
Exposure to lead can be toxic, and it was long ago ruled a
probable human carcinogen by the Environmental Protection
Agency. Given the number of primary smelters that have been
forced to shut down over the past three decades due to new
environmental regulations, half of the worlds supply now
comes from recycling, Widmer says. In the U.S. recyclers
account for more than 90 percent of output, he says, and that
percentage is about to grow even larger. By the end of 2013,
the last primary lead smelter in the U.S. a
120-kiloton facility located in Herculaneum, Missouri, and
owned by the Doe Run Company of St. Louis is scheduled
to close. Meanwhile, the supply of scrap batteries for
recycling has been extremely tight, causing supply
squeezes, especially in the U.S., and thats already
resulted in the closure of some secondary smelters, Widmer said
in one of his reports, where he also noted that large
increases in scrap supply [were] unlikely.
Overseas, Doe Run is in the process of restarting its
100-kiloton La Oroya primary smelter in Peru, which had been
closed since 2009. In Italy Glencores Porto Vesme
100-kiloton primary smelter recently restarted, and other
plants are going back into operation in places as diverse as
Bolivia and Kazakhstan. The push for production overseas is due
in part to the high premium being paid for the refined lead
that is being imported into the U.S., Widmer says, with U.S.
imports jumping to almost 45,000 tons in December 2012, up from
less than 10,000 tons in October.
And in China, the auto market has picked up
strongly, with sales expected to surpass 20 million units
in 2013, according to the China Association of Automobile
Manufacturers, notes Simona Gambarini, associate director and
research analyst at ETF Securities (UK) Limited in London.
Whats also proving to be a bonus for lead
demand is the expansion of wireless networks and
telecoms upgrades in North America and Europe,
Générales Bhar. Chinese
lead demand will be further boosted by plans for the
worlds largest 4G network to be built this year and the
replacement [battery] sector for e-bikes, he added.
Not all analysts are quite so bullish, however.
In its latest forecast, issued in April, the International
Lead and Zinc Study Group (ILZSG), based in Lisbon, Portugal,
says that the market for lead should remain in surplus
this year, but it will be a moderate surplus
of 42,000 tons, much less than it anticipated in October, when
it put the 2013 surplus at 174 kilotons. The group says the
downward revision was mainly due to lower forecasts for
metal production. However, it says it does expect global
mined lead output to increase by 3.5 percent to 5.43 million
tons in 2013. (Lead and zinc are often mined together.)
Stocks of LME lead are down by more than 110,000 tons
since last December, with total holdings now at just under
three weeks of consumption, says New Yorkbased INTL
FCStone metals analyst Edward Meir in his monthly forecast for
May, issued on May 6.
In addition, he notes that the expected excess
supply of roughly 40,000 tons is not large and should not
significantly alter leads relatively tight ending stock
ratio, and that the growth in demand is outpacing the
growth in supply with this largely attributable to the
relatively resilient global automobile market, where
Europe is the exception.
Despite this, he continues, we think that
lead will struggle over the course of May and project a $1,900
to $2,075 trading range.