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Neil Hawkes (CRU)
20th ILC, Crowne Plaza, Berlin, Germany
(29th June 2017)
Global market outlook for lead - understanding the
main lead price drivers
First or last step up in lead price revival ?
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$2,500/t
$2,000/t
Data: LME
LME 3-month lead price, daily ($/tonne)
After 2H2016 rally, lead price slipping, but still in low $2,000s
$1,700/t
• Combination of broader metal price drivers and lead-specific price drivers turning more positive over last
year or so
• Broader drivers - stronger US dollar trend starting to stall, Chinese slowdown levelling out, tightening
supply picture across metals
What has been driving uptick in lead price ?
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Nickel
LME 3-months prices, index to 4th January 2016 = 100
Copper
Zinc
All LME metal prices lifting through 2016-2017, but zinc running
ahead of the chasing pack
AluminiumLead
Tin
Data: LME
• Combination of broader metal price drivers and lead-specific price drivers turning more positive over last
year or so
• Broader drivers - stronger US dollar trend starting to stall, Chinese slowdown levelling out, tightening
supply picture across metals
• Lead-specific drivers - steady (if not spectacular) global demand growth, tighter global primary
(mine) lead availability, tighter picture inside China (2H2016), tightening outlook outside China
What has been driving uptick in lead price ?
What’s the lead demand picture ?
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,00011,00012,00013,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
China
Refined lead consumption, world (‘000 tonnes)
Chinese 2000s lead demand boom over…
Data: CRU
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,00011,00012,00013,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
OtherEuropeRest of AmericasUSARest of AsiaChina
Refined lead consumption, world (‘000 tonnes)
…but slower Chinese growth to still play key role keeping global
lead demand on upward path in 2010s...
Data: CRU
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,00011,00012,00013,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Non-battery uses
Batteries - automotive & industrial
Refined lead consumption, world (‘000 tonnes)
...and that upward path intimately linked to lead-acid batteries
Data: CRU
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2013 2014 2015 2016 2017 2018 2019 2020
Non-ICE**
ICE*
Light vehicle production by powertrain, world (million units)
*ICE = Internal Combustion Engine vehicle, includes ‘stop-start’ vehicles
**Non-ICE = HEVs, EVs and Fuel Cell ‘new technology ‘vehicles.
Majority of new vehicles are ‘conventional’ (ICE) rather than ‘new
technology’ (non-ICE), though latter’s share is rising
2.3% 2.7% 2.8%3.7% 6.2% 7.6% 8.8%% shown are ‘Non-ICE’ as % of total
4.7%
Data: LMC Automotive
0%
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100%
2013 2014 2015 2016 2017 2018 2019 2020
Excluding stop-start
Including stop-start
32%
18%22% 26%
36% 39% 42%
‘Stop-start’ vehicles as % of ICE* vehicle production, global
‘Stop-start’ vehicles rising to account for over 40% of all new
vehicles produced globally in 2020
29%
Data: LMC Automotive Note: *ICE = Internal Combustion-Engine vehicle
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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Steadier ‘normal’ global lead demand growth in 2010s compared
to earlier Chinese-boom fuelled yearsRefined lead consumption, world (‘000 tonnes) % year-on-year change
2.4% per year (1960-2016)
Data: CRU
What’s the lead production picture ?
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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
More varied, but more ‘normal’ global lead production growth in
2010s compared to earlier Chinese-boom fuelled yearsRefined lead production, world (‘000 tonnes) % year-on-year change
2.3% per year (1960-2016)
Data: CRU
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1990 1995 2000 2005 2010 2015 2020
Year-on-year change - secondary (RHS)
Year-on-year change - primary (RHS)
Total - primary (LHS)
Total - secondary (LHS)
Global secondary production typically bigger growth in contrast to
more erratic global primary pictureRefined lead production, world (‘000 tonnes) year-on-year change (‘000t lead)
Data: CRU
• Before the recent lift in metal prices, lower earlier values prompted lead-producing polymetallic mine cuts (led by
Glencore), alongside well-flagged ‘running out of ore’ mine cuts (e.g. Century)
• 2016 marked another drop in global mine output (led by Australia), alongside recovery in primary smelter demand
(led by Korea Zinc) resulting in a marked tightening in global lead concentrate availability
• So long-standing scramble for scrap has been joined by harder fight for lead concentrate
• Now waiting for response of polymetallic mines to higher metal prices and lower TCs, including reversal of price-
related mine cuts
• Having drained excess feed, primary smelter production path to more closely follow ‘fresh’ mine production this
year and beyond
• Unlike in other metals, impact of more variable primary production path will be diluted by the importance of
secondary supplies that will continue to follow a steadier path
Slower primary supplies diluted in lead by importance of rising
secondary supplies
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Lead Copper Zinc
Primary
Secondary
10%17%
Secondary and primary production as % of total, world - 2016
Secondary production far more important in lead
Data: CRU
60%
• Further steady growth in lead demand to ensure further steady growth in scrap supplies
• Alongside high recycling rates and sufficient smelter capacity, secondary lead production to remain the main
driver of global supply growth
• Main issue in secondary lead industry remains one of the ongoing fight for scrap share
• European lead recycling still dominated by large number of players along the supply chain
• Still too many smelters chasing the scrap pool available around the world (including Europe) inevitably leads to
higher scrap prices and flows, both within regions and between regions
Secondary lead industry trends and issues
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Scrap % of LME (RHS)
Battery scrap price (LHS)
LME lead price (LHS)
German scrap price notably higher since mid-2000s
%
Data: LME, CRU Note: Battery scrap price for whole undrained units , Germany 2017 is 1H2017 only
€/t lead
What’s the supply/demand balance picture ?
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Balance (RHS)
Production
Consumption
Refined lead balance, world (‘000t)
Pulling demand and supply together, global lead surplus
shrinks before moving into deficit
Refined lead consumption/production, world (‘000t)
Data: CRU
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Balance outside China
Balance inside China
This year, world outside China joining already tighter lead market
inside China, most of early 2010s surplus ‘ex-China’
Refined lead – market balance (‘000 tonnes)
Data: CRU
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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1Q2017
Reported
Implied unreported*
Refined lead stocks, world year-on-year change (‘000 tonnes, year-end)
Smaller stock ‘iceberg’ already ‘shrinking’?
* Derived from difference between change in reported stocks and market balance
Data: CRU, ILZSG, LME, SHFE
What path lies ahead for lead prices ?
• More geopolitical events could blow metals off course - 2017 European elections, ‘Brexit’ process, less
conventional USA, more assertive Russia, Middle East war/tensions, maverick North Korea, more ‘surprises’ ...
• ...slower world economic growth means slower metals demand growth
• Underestimating rising threat to LAB dominance from alternative battery chemistries, notably LIBs on vehicle
electrification path
• Higher metal prices (lower TCs) trigger swifter/greater polymetallic mine response than expected
• January 2017 removal of Chinese 10% export tax had been successful tool in slowing Chinese lead exports to a
trickle - could they lift again ?
• Less tight lead market (weaker demand/better supplies) and renewed investor caution could see LME lead price
struggle to sustain further steps higher
• Even struggle to hold recent gains back up into low $2,000s - instead falls back into previous high $1,000s
trading
Downside risks lurking…
• Room for reasonably robust lead demand growth, helped by LAB usage in ‘stop-start’ vehicles
• Tighter raw material feed (concentrates joining scrap) restraining smelter production growth. Future growth path
less certain for primary than secondary - mine project pipeline typically zinc-rich and lead-poor
• Not just uncertain size of lead stock ‘iceberg’ - composition (‘use-ability’) and rate of release into the market will be
key in determining lead price path ahead
• More favourable ‘external’ drivers - bullish outlook for other LME-traded metals, notably zinc; US dollar rally running
out of steam; orderly transition to slower Chinese growth path
• Lead price already taken a step up into low $2,000s from high $1,000s - ‘see-sawing’ sideways this year as market
tries to work out ‘real v fake’ improvements in underlying lead market dynamics and broader metal price drivers
• November 2016 high in $2,500s provides first upside target - next is 2011 high of around $2,850/t
…but upside still beckoning
Time for reflection and any questions...now or later
Neil Hawkes
Lead market analyst (CRU)
T +44 20 7903 2101
E neil.hawkes@crugroup.com
W www.crugroup.com
20th ILC, Crowne Plaza, Berlin, Germany (29th June 2017)
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