Risk of price spikes for lead as surplus narrows-industry
SINGAPORE, Sept 12
SINGAPORE, Sept 12 (Reuters) - Lead faces potential price spikes and rising premiums as a small market surplus dwindles further next year due to pressure on U.S. output, while demand is cranking up after the global crisis, industry experts said.
The global lead market, in surplus for the past 4-5 years, is tightening as stricter environmental standards and soaring prices for scrap boost costs, putting pressure on paper-thin margins and forcing some plants in the West to close.
At the same time, battery demand from the automotive and electric bicycle sectors has remained sturdy, raising the potential for higher prices and escalating premiums, industry participants at a battery conference in Singapore said.
"Our numbers are showing the global lead market moving into deficit from next year," said London-based consultant Neil Hawkes of research firm CRU.
"It's not a huge deficit. But certainly in an already tight market ... things could start to heat up in the next few years and certainly price spikes are a possibility going forward."
The world consumes just over 11 million tonnes of lead each year, mainly for batteries, of which 60 percent comes from recycling and the remainder from mines.
Lead prices have fared better than most other London Metal Exchange metals this year but are still down 9 percent at $2,130 a tonne.
U.S. premiums paid on top of LME prices to obtain metal, are around 10-12 cents a lb ($220 to $265 a tonne), but could rise as high as 15 cents for term shipments next year, Hawkes said.
Consultancy WoodMackenzie sees a global lead surplus of around 100,000 tonnes this year halving in 2014. It sees prices about $100 higher next year, and in a $2,200-2,400 band for the next few years.
"There are still surpluses, but they are smaller surpluses because we are starting to see those supply side issues, alongside reasonable demand, beginning to have an impact," said WoodMac's Helen Matthews.
Consolidation among U.S. smelters is driving regional tightness and may push the United States to renew imports, drawing in supply from the rest of the world and lifting premiums in Asia and Europe.
Producer Doe Run's Herculaneum, the sole primary smelter in the United States, is to shut at year end, while Exide has already closed two plants.
Supply has been cut by a mild summer which reduced the failure rate of car batteries, while looser environmental standards in countries like Mexico and South Korea have sucked in shipments that can be processed at a lower cost.
Scrap batteries now cost more than 40 percent of the LME price, up from a 30 percent historic average, putting margins under pressure, said Ray Kubis, President & Managing Director of UK-based Eco-Bat Technologies Ltd, the world's top independent lead producer.
"When you're facing a $20 million improvement in air emissions control, without margins it's much easier to say 'time out' or idle the plant for a better moment," he said.
As such, the United States may have to rely on imports.
"The timing is such that normally about Sept., Oct., we start to see some restocking for the winter season. So there is potentially the prospect of higher premiums if material isn't available," WoodMac's Matthews said.
The U.S. doubled lead imports to March from last October, driven by reviving auto sector demand which pushed the world market into a deficit in the first quarter.
Meanwhile, growth in lead demand is slowly recovering in line with the global economy to just over 5 percent next year from sub-5 percent this year, helped by demand from China, which is still expanding at a healthy 8-9 percent clip, Matthews said.
Still, demand growth for e-bikes, which account for about 40 percent of Chinese lead demand, has been moderating. Each e-bike battery can use about 10 kg of lead.
"They are called the silent killer because you can't hear them coming, but they go up to 60 km an hour (38 mph) so they have a lot of road traffic accidents, hence they are banning them in several major cities," she said.
"But there is still a huge population of e-bikes over there that will need new batteries every two years so that's still a sizeable driver of demand."
(Reporting by Melanie Burton; Editing by Richard Pullin)
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