Global lead prices look set to scale new heights on worries over falling Chinese exports and as problems with mines hamper primary metal production. Visible stocks held in London Metal Exchange (LME) warehouses fell to 17-year lows at the end of September due to a slump in exports from key supplier China because of tax changes there and difficulties at major mines.
A shortage of mine feed has constrained output at primary smelters. These factors, coupled with strong Chinese demand from burgeoning vehicle production, have sent prices to record highs this month and will keep the market nervous well into 2008, analysts say.
"At best there will be a small surplus next year, but the market is still sensitive to primary supply disruptions," said Neil Hawkes of industry consultants CRU. China consumes over one-quarter of the world's lead.
Lead consumption is expected to continue to grow with China the driving force as surging vehicle production boosts demand from main end-use batteries. This should more than offset weakness in the United States and Japan and flat demand in Europe.
LME three-months lead, which has more than doubled since the start of the year, was last indicated at $3,605/15. Last week it reached a contract high of $3,890. Standard Chartered said in a recent report there was a perception that the LME lead price no longer reflected the wider market with consumers reporting good metal availability.
However, mine problems in Australia continue to dominate the headlines along with declines in exports from key supplier China. Claire Hassall of consultants CHR Metals said the removal by China of a rebate on value-added tax (VAT) for exporters and the imposition of a 10-percent tax on exports, had a major impact on global lead supplies.
As yet, she said, there were insufficient incentives to encourage China to export significant quantities of metal. Latest official customs figures show Chinese exports slumped 73.4 percent in August from a year earlier to 9,793 tonnes. In the first eight months of 2007 they were down 50.8 percent.
"If you assume Chinese refined exports are half what they were before, you need a pretty brave assumption of how much other producers can increase to get any semblance of balance next year," Hawkes said. Meantime, secondary lead supply will continue apace, analysts say. Scrap metal, sourced mainly from used lead-acid car batteries, accounts for just over half world refined lead production and about 70 percent of Western world output.