Lead Supply Worries Increase as Stockpiles Fall to "Critical" Levels

Lead prices could be set to surge in the last few months of the year. China’s environmental awakening has increased worries about supply, while demand in the country remains strong.  
On Wednesday (September 13), LME lead prices closed slightly down, at $2,270.75 per tonne. However, overall prices have been surging since the beginning of the year, increasing almost 13 percent since January.
Chinese lead demand is largely being driven by battery makers, which use the metal to make lead-acid batteries for cars and other vehicles. But despite high demand, the Asian country has been shutting down lead smelters due to environmental concerns, increasing worries about supply. Production of raw material from mines in the country has also suffered from environmental inspections, according to analysts.

“Even stricter environmental regulation and inspections on both mines and smelters/refineries curbs a certain amount of refined lead production,” Jianbin Meng, director of economics and environment at the International Lead and Zinc Study Group, told Reuters.
Declining warehouse inventories have also supported lead prices. Shanghai Futures Exchange (ShFE) lead stockpiles have decreased more than 64 percent since May, to 29,850 tonnes. What’s more, on-warrant lead available for delivery sits at 9,735 tonnes, down from 80,089 tonnes in May.
“In the last few weeks, the ShFE warrants have dropped a lot so people may turn to the ShFE stocks to satisfy their lead demand. Now the stocks are at a critical level,” a Shanghai-based trader told Reuters.
Other factors, such as geopolitical tensions and the closure of zinc mines, where lead is mined as a by-product, have also impacted the base metal.
“Prices have been kept elevated in part from escalating geopolitical tensions over North Korea as China banned coal, iron and lead imports from the country as part of a new round of U.N.-led sanctions,” FocusEconomics says in its latest report.
Panelists surveyed by the firm have divergent views on the evolution of lead prices over the course of the year. Looking ahead to the next few months, they estimate that the average lead price for Q4 2017 will be $2,258. The most bullish forecast for the quarter comes from Macquarie, which is calling for a price of $2,599; meanwhile, Euromonitor International is the most bearish with a forecast of $1,729.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.