Lead Outlook 2016: Watch China for Cues

There’s no denying that 2015 has been a tough year for base and precious metals alike. And as with most other commodities, lead prices have seen quite a drop this year, falling 17 percent, to $0.76 per pound.
Prices were on the rise earlier in the year, peaking at around $0.97 on May 1, and to be sure, analysts were expecting a deficit for lead at the start of 2015. However, lead was not immune to pressures faced by the broader commodities complex, and the market saw lead prices decline in the latter half of the year.
To get a bit more insight into the lead market in 2015, the Investing News Network reached out to Wenyu Yao, senior analyst for base metals at Thomson Reuters GFMS. Below, she provides a review of 2015 and comments on what investors can expect going into the new year.

For Yao, there weren’t many surprises in the lead market in 2015. “So far, the price performance on the LME market looks pretty close to [our] predication, and it is one of the closest forecasts among a total of 21 institutions in the latest Reuters poll from October 15,” she said. As of December 2, LME three-month lead had averaged US$1,801 per tonne for the year.
The biggest news for the year was China’s decision to begin levying a 5-percent tax on lead-acid batteries, effective January 1, 2016; unfortunately, Yao expects this move to add downward pressure to the lead demand outlook.
Another 2015 theme was that production constraints started earlier for lead than for the rest of the base metals. Indeed, the China National Statistics Bureau states that the country’s lead concentrate production by metal content contracted by 6 percent in 2014, and by 9.6 percent in the first months of 2015. “Refined lead production was down by 6.9 percent in 2014, and down 4.5 percent in the first months of 2015,” Yao added.
In contrast, refined zinc production was up 11.1 percent in 2014, and up by another 7.9 percent in the first 10 months of this year, although zinc mine supply growth was down 0.36 percent in 2014. Copper mine supply growth was up 5.7 percent in 2014.
However, that contraction in supply wasn’t enough to support lead prices through the year. “[L]ead prices generally fell together with the rest of base metals complex amid the slowing economy from China [and a] weaker demand outlook,” she said.
Unfortunately, the demand side of things isn’t looking much better going into 2016. Yao explained that the largest end-use sector for lead, the E-bike market, is close to saturated, and the market hasn’t found a fresh area of demand to support consumption growth.

In terms of what to watch for next year, Yao suggested looking at Chinese lead supply — especially secondary lead supply — as well as anti-pollution scrutiny for the lead and zinc industries.
On the demand side, she pointed to China’s new lead-acid battery consumption tax as a key factor for investors to keep an eye on. As Chemwatch notes, the Chinese Ministry of Finance announced earlier this year that it will apply a consumption tax to batteries and coatings in order to promote environmental protection and energy conservation. As mentioned, lead-acid batteries specifically are set to be subject to the tax as of January 1, 2016, and Yao warned that a delay in implementing the tax could also postpone any effects on demand.
Certainly, it was an interesting year for lead, and base metals investors will want to keep a close eye on the space going into 2016.
 
Keep an eye out for an updated forecast for lead from Thomson Reuters GFMS in January 2016.
Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned. 
Related reading:
Lead Outlook 2015: Another Small Deficit Expected