Rising demand and shrinking supply of lead have analysts optimistic that about what investors can expect in 2014.
2013 market performance
Over the course of 2013, demand for lead rose significantly worldwide due to the the recovery in the auto industry in the U.S., the world’s second-biggest market for lead. The U.S. doubled its lead imports over the first six months of 2013, influencing the price of the metal on the London Metal Exchange to rise more than 13 percent between May and June of 2013. Reuters reports the global market for lead tends to be consistent and balanced, meaning this surge is cutting into stockpiles and moving the market toward a deficit.
The World Bureau of Metal Statistics found U.S. imports of refined lead grew to 50,000 tons a month on average between November 2012 and March 2013 – leading those five months to come in at almost double the amount of lead the U.S. typically imports in a year.
“(Consumption) is likely coming from the auto sector because we know that the big three in the U.S. are at full capacity,” Joel Crane, an analyst at Morgan Stanley, told Reuters.
However, lead plant closures have forced automakers and other end users of the metal to seek other sources, including looking to Asia for lead. The U.S. imports most of its lead from Australia, according to the World Bureau of Metal Statistics, which has an impact on the supply of the metal in Asia. The exception to this is China, the world’s biggest producer and consumer of refined lead, which does not tend to export the metal due to export duties.
“Because the market is so finely balanced, it just needs a little bit of stronger demand or a few production problems to actually see a few pockets of shortage emerge,” analyst Neil Hawkes of consultancy CRU, told Reuters.
In addition to rising demand in the U.S., lead traders have been seeing an increase in business in India, where demand is high. The middle class uses back-up batteries to weather summer power cuts, and these require lead.
“We have been doing a lot of business into India for the last month and a half,” a dealer told Reuters. “To all parts, Chennai, the eastern parts, largely consumed by the battery segment.”
India demands near half a million tons of lead a year, representing 5 percent of world reserves. At Malaysian ports, the price for lead was typically $70 to $80 higher than on the London Metal Exchange in mid-year 2013.
Lead[ing] the pack into 2014
According to the International Lead and Zinc Study Group, the global refined lead market experienced a significant deficit in the first half of 2013. The inventories at the LME and the Shanghai Futures Exchange alike are low. Because of low supply and increasing demand, 2014 looks good for lead. The Wall Street Journal predicts lead supply will fall short of demand in 2014.
“The market looks a lot tighter in terms of balance this year and next year,” Joseph Murphy, a senior analyst at Hermes Commodities, told the WSJ.
The price of lead tends to rise in the colder months, as low temperatures often cause car batteries to fail. Because of this, manufacturers want to be ready with enough batteries to replace those lost to the cold. For this reason, many commodities traders look to put their capital on lead toward the end of the year and the beginning of the next. The growing demand for cars, and hence for lead, in developing economies is also bolstering the metal’s price.
Car sales are rising – in China, they rose 21 percent year-over-year in 2013, while they rose 12.7 percent in the U.S. and 5.4 percent in Europe, according to the WSJ. This is good news for lead, which looks to have a promising year ahead.
Business Standard published an article about the future of base metals in 2014 and asserts the tapering of the U.S. Federal Reserve’s quantitative easing program and the economic growth in China both point to investment capital coming back to base metals in the year ahead. The publication expects higher prices in the coming year on lead and other base metals. It cites lead as the best-positioned of the base metals in 2014 as the forecast calls for global supply deficits throughout the year.