By Otto Rock
This was part of last weekend’s edition of The IKN Weekly. Just one small edit, the name of a company at the end.
More on Lead (Pb)
It was hectic and a bit of a squeeze to get the edition out on time last week, since then I’ve had time to fill in some blank spaces and none more so than the intriguing situation in the lead market. What I’ve found by checking the data is that there’s every reason to suppose an acceleration in the demand for lead that justifies the current voracious appetite of smelters for product.
The place to go for reliable supply demand data is the International Lead and Zinc Study Group (ILZSG), based out of Portugal and comprised of a selection of industry experts from all corners of the sector. We’ve made use of their database (22) on these pages previously for the zinc exercise which showed in 2016 the rise in demand (that’s worked out very nicely thank you) and it’s now time for its ugly sister, known in Latin as plumbum and the reason we call out the plumber who’ll often bring his plumb line. This chart derived from the data shows the supply make-up of Pb and the first thing to note is the high percentage of end user supply that comes from the re-cycling business. There are well-established firms that do this and as much as 97% of the lead used in car batteries is scavenged and sent back to battery makers to use again. However, mined supply is also on the rise and with 11 months of data for 2017 already published, our estimated as seen in the charts is likely to be within a tight margin of error and shows supply expanding again after a couple of stagnant years.
When it comes to demand, there are a few extra uses for the metal out there such as electrical cable wrap (around 6% of supply) and ammunition (shot takes around 3% of the supply) and there’s even lead still put in some fuels and paints around the world (long past time to stop that, people) but the main use for the metal by a long way is for lead/acid batteries, taking around 80% of all the metal out there. Therefore when we talk lead demand we’re talking about cars, trucks, all types of moving vehicles and look no further for the demand driver (and therefore the reason for price changes. On this score, let’s take the aggregate supply as seen in the above chart and place it next to the demand columns for the same years (plus the ILXSG forecast for 2018 added in for reference) but please note the cut down Y-axis, which I’ve done to show surplus/deficit differences more clearly and not to try and fool your eye.
As you can see, supply and demand were reasonably lockstep for the five years to 2016, but 2017 saw it move into a deficit and with the ILZSG predicting further demand growth for this year, we should expect more pressure to deliver. What’s more, if we scratch around at some of the underlying data we see details of the demand hike.
This chart right shows the quarterly net imports of lead into China (the world’s leading user of Pb, which is another way of saying that it makes the most car batteries). Inside the numbers included in that China chart are other intriguing datapoints too, such as the way in which up to 2016 China exports more pure refined Pb than imported (around 11,000 tonnes), but last year the numbers flipped and they imported a net of 77,000 tonnes).
My final exhibit today is a chart from a report compiled by Grandview Research (23) from 2016 which shows the lead/acid battery market for the USA only, which is set to grow substantially in the years to come with two of the forecasts added in for your consideration. It may be counter-intuitive what with the rise and rise of lithium batteries, but traditional lead/acid units aren’t about to go out of style whether they be SLI (starting, lighting and ignition, what we consider a “normal car battery”), motive (e,g, the large banks of batteries used by fork lift trucks and the like) or stationary (which are seeing growth due to the need to store alternative power, such as solar).
The bottom line: The lead market has quietly grown to the point where it’s tighter than the headline-grabbing zinc market and the likelihood is that Pb’s run is far from over. All the more reason to like (company name), in my view.