China will play a key role in how lead prices will rule in 2024 as Beijing’s shipments have helped the market rule stable in 2023. Analysts are, however, divided on the direction the market will head. “Lead prices rose 3 per cent in Q3 2023 from the previous quarter on stronger demand,” the World Bank Commodity Outlook said.
Stimulus measures in China and speculation that major economies are nearing the end of their monetary tightening cycle lifted sentiment for the automotive sector — a major consumer of lead-acid batteries.
About 85 per cent of lead demand is for batteries, of which half is for replacement automobile batteries, it reasoned for the metal’s third quarter gain.
Offsetting weak output
“The global lead market has been fairly balanced over 2023 and we expect this to persist into early-2024. Strong exports of refined lead from China and a surge in LME lead stockpiles in recent months suggests that the market is well supplied,” said research agency BMI, a unit of Fitch Solutions.
On the London Metal Exchange (LME), lead three-month contract ended at $2,271 a tonne while it was quoted at $2,265 on cash basis.
BMI said refined lead exports from China will continue to offset weak production in the rest of the world. “China exported 35,400 tonnes of refined lead in September, the highest monthly total since June 2022. China’s total exports during January-September 2023 increased by 49 per cent y-o-y to 1,38,000 tonnes, on course to be the highest since 2007,” it said.
ING Think, the economic and financial analysis wing of global Dutch financial services firm ING, said recent LME data show that total on-warrant stocks for lead declined. “The majority of the decline was reported in Asian warehouses (particularly in Busan, South Korea),” it said.
Low Shanghai stocks
Readily available stocks have witnessed net outflows and cancelled warrants for lead have increased, though the total exchange inventories remained unchanged at 1,35,925 tonnes. Cancelled warrants mean delivery of the metal has been sought.
BMI said lead stockpiles at the Shanghai Futures Exchange stood at around 50,000 tonnes at the end of October 2023, down from 2,00,000 tonnes two years previously, a caution that prices will likely rise. “We have maintained our lead price forecasts and expect the market to remain fairly balanced into early 2024. We expect prices to start edging higher by mid-2024, as the flow of Chinese refined lead exports slows,” the research agency said.
Tightening domestic market
But the World Bank’s Commodity Outlook warned that lead has been cushioned against cyclical demand declines that affect other industrial metals. “Lead prices are expected to decline by 2 per cent in 2023 and remain relatively stable in 2024 and 2025 amid a steady increase in supply,” it said.
The research agency said persistent exports from China have run down the country’s lead surplus and there are signs that the local market is beginning to tighten. “As refined lead demand in China accelerates in early 2024, we expect China’s exportable surplus will be further reduced. Weaker lead exports from China will create some pockets of market tightness in key demand centres such as Europe and the US,” BMI said.
Batteries phase-out
The World Bank outlook said mine production growth is expected to accelerate in 2024 and grow moderately in the medium term. “Primary lead production is increasing from Australia, Canada, China, India, and South Korea, while secondary supply (recycled batteries) is also expanding,” it said.
Lead demand faces structural headwinds from increased production of electrical vehicles (EVs), which predominantly use lithium batteries, it said. “Although lead-acid batteries are still used for secondary functions in EVs, there are indications that some manufacturers may phase them out. The outlook for industrial lead batteries is also uncertain, given technology developments,” the outlook said.
High energy costs
But BMI said supply growth will be weak in 2024. “We forecast refined lead production to grow by just 1 per cent in 2024 after growth of 5.5 per cent in 2023,” it said.
High energy prices and supply chain problems in the global auto industry have constrained the rebound in lead refinery production from the Covid-19 pandemic. “While lead demand from the auto industry is starting to recover, energy costs will remain high for lead smelters, particularly in Europe,” the research agency said.
In the long term, prospects are bullish with the market tightening and the market facing a deficit.