- Lead refined metal consumption records surplus of 78,000 MT in Jan-Jun 2020 period
- Lead LME prices decline to 5-year lows, though register pullback in last few months
- Automotive sector, which generates larger share of demand for Lead, likely to see weaker demand for the full year
Lead, the battery metal has been on a downward spiral since its intermittent peak around $2,300 per MT levels, in Nov 2019. Price of lead, along with most other base metals saw sharp drop in the last quarter of 2019 amidst continued softening in manufacturing activity in major industrial and consumption led economies around the world. Situation worsened post the outbreak of Covid-19 in Dec 2019 in China which spread in major parts of the world in Feb and has since become one of the worst pandemics across the globe in the last many decades. Coronavirus led to partial and/or complete lockdown of man and material in almost all developed and developing economies in the world over the last few months, affecting the production and consumption of all major products and services other than those categorized under essential segment.
The industrial metals space was not an exception wherein closure of manufacturing facilities and reduced consumption for products around the world pushed the demand for the metals, including lead which saw fall in mined output as well as demand during the first 6 months of 2020. As per data from ILZSG (The International Lead and Zinc Study Group), refined lead metal production fell by 4.3% to 5.56 million MT during Jan-Jun 2020 as compared to 5.81 million MT during the same time last year. Mined production fell by 5.5% to 2.16 million MT while balance supply in terms of total refined metal was supported by secondary market refining which too registered a drop in output, though, the same was marginally lower than fall in mined supply. As per the agency, drop in output was majorly led by cut in mined production in Bolivia, Canada, India, Kazakhstan, Peru and South Africa amongst others. Overall consumption for the metal which gets nearly 80% of its demand from battery and related products saw a decline by 5.9% to 5.48 million MT. Demand was lower in a number of countries with major ones being Brazil, China, India, Japan, Europe and the US. Amongst the European countries, consumption was majorly hit in France, Italy, Poland, Czech Republic, Russia, Spain and the UK
China which is the major consumer of the metal in the world, saw huge drop in import of lead concentrates, dipping by nearly 25% to 318,000 MT in the first 6 months of 2020. As the country was the first one to be hit by coronavirus pandemic, manufacturing demand fell sharply in the initial months of 2020 while recovering moderately in the latest few. However, overall industrial situation in the country remains way lower than the earlier average both in terms of production and consumption as seen in 2019 and previous years. The same was also reflective in the import demand of the refined metal, wherein net imports of refined lead metal stood at just 18,000 MT as compared to 86,000 MT during the same period last year. Weakening consumption across geographies pushed the commodity into surplus during the period under review with supply exceeding demand by 78,000 MT as compared to a deficit of 13,000 MT in the previous year same period.
Subdued demand expectations for the commodity was reflective on the price of the metal which saw huge fall during the initial months of the year. Lead LME prices were pushed lower than $1600 per MT, touching its weakest levels since 2015, in March and May months of 2020 amidst acute drop in demand for the commodity and led by anticipation that weaker economic cues across countries would further weigh on the consumption of the physical metal. Prices have recovered largely and currently trade near the $1,950 per MT mark, marginally better than the closing levels of 2019, though, this looks more driven by financial and investment led rise as also seen in most asset classes around the world lately including base metals.
Nevertheless, economic developments continue to show weakness in major sectors globally. If we look into core demand areas for Lead, as aforementioned, automobile sector records the highest consumption for the commodity backed by its battery demand. As per data and estimates from Scotiabank’s, Global Auto Report, world auto sales is seen dropping by around 30% for 2020. Total global auto sales is seen pushing down to under 60 million units as compared to 75 million units in 2019 with ~25% drop expected in North America, Eastern Europe and Asia whereas Western Europe and South America expected to record a near 40% drop in fresh sales. While production numbers might not look as bad as compared to sales, with the unlock phase recording gaps in production and consumption in some parts of the world, eventually resulting into lowering of inventory at dealer levels. Still, broader subdued supply and demand trend in the sector is expected to weigh on the demand of the commodity in the coming quarters too.
Similarly, on one side, economic scenario is witnessing amelioration in major parts of the world as economies and people try to comeback to normalcy after the Covid-19 led shocker, however, we have yet to see things reaching pre-covid levels and that may keep the total refined demand for lead metal lower for the rest of 2020, as compared to 2019. This is expected to put a cap on the ongoing strong performance in lead metal price, which after the decent pull-back rally in last few weeks may see stabilization. Commodity is largely seen hovering in the range between $1,800 per MT on the lower side and $2,050 on the higher side in the coming quarters.