Wondering how to invest in lead? Our brief overview explains how to get started.
Lead is a soft, dense metal that is bluish-gray in color and has a bright luster when freshly cut. It is the fourth-most-used metal worldwide, and is generally found in ores with copper, zinc and silver.
Because of its high resistance to corrosion, lead used to be used in plumbing. Today, however, most lead is used to make lead-acid batteries — in fact, according to the US Geological Survey’s most recent report on lead, the lead-acid battery market accounted for over 85 percent of American lead consumption in 2016. Lead-acid batteries are primarily used to power vehicles, but they have other uses as well.
While the lead price underperformed for much of 2016, it rebounded in the last quarter of the year. For that reason, some market watchers believe the metal could continue to do well in 2017, and are interested in entering the market. Read on for a brief overview of how to invest in lead, from supply and demand dynamics to investing options.
Invest in lead: Supply and demand
As mentioned, most lead is currently consumed by the lead-acid battery industry. These batteries are mainly used to power vehicles, but are also used in emergency systems, computers, forklifts and other equipment. In addition, lead is found in remote-access power systems, load-leveling systems and compounds used in the glass and plastics industries.
The International Lead and Zinc Study Group says that 2016 global refined lead consumption came in at about 11.2 million tonnes, up slightly from 2016. According to the organization, European lead demand rose by 8.7 percent, while usage in the US rose by 3.6 percent.
In terms of supply, it’s worth noting that lead has one of the highest recycling rates in the world — in 2013, secondary lead production accounted for 54 percent of total output, says the International Lead Association. Part of the reason lead is recycled so extensively is that it can be recycled indefinitely without any reduction in quality.
Of course, mined lead is also important, and in that regard China is the biggest producer of the metal by far. It put out 2.4 million MT of lead in 2016, far ahead of second-place Australia. That said, China’s 2016 lead mine production was down by 100,000 MT compared to the amount it produced in 2015.
That supply contraction is what caused lead’s positive price performance at the end of last year, FocusEconomics has said. The US Geological Survey also notes that lead supply was further constrained in 2016 by mine closures in Australia and reduced US output. In addition, in Q4 the metal benefited from seasonal battery demand.
In the next few years, continued decreases in lead supply are expected to push the market into deficit. “The global primary lead market will shift into deficit by 2018 on the back of persistent supply cuts. Mined lead production will be hit by a global slowdown in mining capital expenditure, which will have a knock-on effect on refined lead supply growth,” BMI Research reports.
Invest in lead: Stocks, futures and ETPs
Investors who are optimistic about lead believe that those supply and demand dynamics could push the metal’s price up in the coming years. But what is the best way to take advantage of that situation? Those who want to get into the lead sector have a variety of options.
Buying shares of lead-producing companies is one way to gain exposure to lead, but this route can be difficult as lead is generally mined as a by-product of copper, zinc or silver. Major miners that produce some lead include BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) and Teck Resources (TSX:TECK.B,NYSE:TECK), though of course there are many other smaller companies that have a partial focus on the metal.
Exposure to lead can also be obtained by buying futures contracts on the London Metal Exchange. Futures are traded in lot sizes of 25 MT, and prices are quoted in US dollars and cents per MT.
Another option is to invest in exchange-traded products (ETPs) with a focus on lead. According to CommodityHQ, a number of broad-based industrial metals ETPs offer lead exposure — those include the PowerShares DB Base Metals ETF (ARCA:DBB) and iPath Bloomberg Industrial Metals ETN (ARCA:JJM). There is also a pure-play lead ETP available called the iPath Bloomberg Lead ETN (ARCA:LD); it is linked to an index that consists of lead futures contracts.
This is an updated version of an article originally published by the Investing News Network on July 16, 2008.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.