With prices of lead increasing nine per cent in the past month, the outlook for the metal for the remainder of the year and the first quarter of 2023 has turned positive.
“The most significant driver of this shift has been a pickup in Chinese activity,” said research agency Fitch Solutions Country Risk and Industry Research in a commentary.
Chinese authorities have introduced a slew of policies to help support the country’s real estate sector. “These measures encourage us to believe that real GDP growth in China will rebound to 5 per cent in 2023 from 3.6 per cent in 2022. This should be accompanied by an uptick in the production of autos and thus demand for lead in the world’s largest consumer of the metal,” Fitch Solutions said.
Price forecast
This has resulted in the research agency raising its price forecast for lead, used in car batteries and soldering primarily, to $2,250 a tonne for 2023 from $2,110. It has, however, left its long-term price forecast unchanged.
On Tuesday, the lead three-month contract was offered at $2,212, while for cash it was quoted at $2,193.50 on the London Metal Exchange. (LME). Lead prices have increased over 5 per cent in the past week and nearly 9 per cent over the past month. Year-on-year, it has gained less than 1 per cent.
Shanghai Metal Market (SMM) News said there was a shortage of battery scrap in China’s north-west, northern and Mongolia regions. Smelters may advance their holidays to mid or late-December in view of this.
Reports said increasing Covid cases affected the procurement of battery scrap in China.
‘Demand facing headwinds’
Fitch Solutions said it has not made “a more significant upward revision” to its price forecast as the demand in developed economies in 2023 could be slack.
“Our aggregate forecast for global growth in 2022 remains broadly unchanged from October at 3.1 per cent, but our 2023 forecast has come down from 2.1 per cent to 2 per cent. The deceleration in global growth will largely be led by developed markets, which will see growth decelerate from 2.5 per cent in 2022 to 0.5 per cent in 2023,” Fitch Solutions said.
However, the World Bank in its Commodities Market Outlook said lead demand is facing headwinds due to weakness in the auto industry. “(Lead) Production has not been subject to the disruptions that other metals face as lead refining has low energy intensity, and neither Russia nor Ukraine are major producers,” it said.
Lead prices are expected to be 10 per cent lower in 2023, in addition to a projected 5 per cent fall in 2022. “Global lead demand is expected to rise in the medium term, due to steady new vehicle production, replacement battery use and utilisation of lead batteries in EVs for auxiliary functions,” the World Bank outlook said.
Rising power costs
Fitch Solutions said supply-side disruption at autos factories will constrain production and thus limit demand for refined lead. Power costs for manufacturing firms will continue to rise, particularly in Europe, while the global semiconductor shortage will drag on well into 2023.
“We forecast global vehicle production to grow by just 2.3 per cent in 2022 and 4.1 per cent in 2023, compared to 2.4 per cent in 2021. This would be a weak rebound from the nearly 20 per cent contraction in global output over 2018-2020,” it said..
The research agency said its outlook for global vehicle production is supported by its belief that the global semiconductor shortage will drag on well into 2023, with a slight improvement in supplies expected in the second half as demand from other sectors (mobile phones and computers) wanes.
Risks to outlook
In view of this, it forecasts refined lead consumption to contract by 2.2 per cent in 2022 before rising by 2.4 per cent in 2023. “This pace of expansion would only be sufficient to take demand back up to the 2021 level,” it said.
Fitch Solutions said a risk to its outlook was a significant improvement in lithium supply prospects which would create downside pressure on lead prices. “Such a development would likely require either more rapid growth in the global lithium mining sector that we currently anticipate or technological improvements in lithium-ion battery recycling,” it said. Should lithium supply prove sufficient to meet anticipated demand from electric vehicle manufacturing, then auto manufacturers may seek to replace 12v lead-acid batteries with a lithium-based alternative, the research agency said.