World lead prices, propelled to record highs by supply worries and fund buying, may rise further given the limited scope for consumers to use other materials and continuing constraints on production, analysts say. "We could see peak values of $3,000-3,500" said Andrew Keen of Bernstein Research.
Exports from top producer China, which fell to their lowest for several years in the first quarter, were also seen as a key factor. Neil Hawkes of CRU International said brisk demand and limited supply justified high and rising lead prices, citing the 1979 real-term high of $2,800 a tonne as a possible target.
"Blue sky territory can now be reached," he said, adding that the higher prices went, the further they would fall once new mine supply came through in the next couple of years.
At 1500 GMT the London Metal Exchange (LME) three months lead price was indicated at $1,990/2,000, just below the nominal all-time high of $2,045 seen earlier this month. But others were less convinced of higher price prospects. Independent consultant Farid Ahmed of Wolf Unique saw the market settling below $1,900 and then dropping back to around $1,800 by the end of the third quarter.
Lead demand typically slows in the second quarter after the winter battery season and analysts said this might lead to near-term increases in LME warehouse stocks. LME lead reserves were at 41,350 tonnes on Wednesday, up by more than 10,000 tonnes from the year's lows in mid-March but still 70 percent below their recent peak of 117,900 in mid-2006.
But the lead market has been unsettled by a series of output disruptions, coming on top of lower Chinese exports. "The market is virtually guaranteed no significant supply rise at least until next year," Hawkes said, predicting a market in balance or a supply deficit in 2007.
Canada's Ivernia declared force majeure on shipments from its Magellan mine in Australia in mid-March due to health fears. On April 13 the firm said it might take up to four months to find alternative shipping arrangements. In February Xstrata Plc declared force majeure on lead deliveries from its Northfleet refinery in Kent, England due to problems at its Mount Isa smelter in Australia. Output was expected to return to normal in the first half of the year.
Apex Silver's San Cristobal mine in Bolivia is due on stream soon and shipments from the 85,000 tonnes per year (tpy) operation may begin in the third quarter. But analysts were concerned by delays to two other big projects - Herald Resources' 65,000 tpy Dairi project in Indonesia and another in Iran. Supplies from China to date have been at their lowest for several years. Latest official customs figures show first quarter Chinese exports were 43,278 tonnes, down 71.7 percent from a year ago. Imports rose 10.6 percent to 6,811 tonnes.
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