Global Industry Overview - Lead: Tightening Market To Support Price Recovery - FEB 2017


BMI View : The global lead market balance will shift into deficit on the back of persistent supply cuts , which will push prices higher in the coming years.

Global Balance: Market To Tighten And Shift Into Deficit

The global primary lead market will shift into deficit by 2019 on the back of persistent supply cuts. Mined lead production will be hit by a global slowdown in mining capital expenditure, which will have a knock-on effect on refined lead supply growth. We forecast consumption to exceed production by 10 thousand tonnes (kt) in 2019, following a surplus of 84kt in 2016 and 15kt in 2017, respectively. As a result, the global stocks-to-use ratio will peak in 2017 at 6.7% and edge lower in subsequent years, reaching 5.8% by 2020.

Shift Into Deficit To Support Price Recovery
Global - Refined Lead Production Balance (kt) & Stocks-To-Use Ratio (%)
f = BMI forecast. Source: USGS, BMI
Lead Market Forecast
2015 2016f 2017f 2018f 2019f 2020f
f = BMI forecast. Source: USGS, BMI
Lead Production, thousand tonnes 10,116 10,640 10,794 10,872 10,987 11,066
Lead Production, thousand tonnes, % y-o-y -7.8 5.2 1.4 0.7 1.1 0.7
Lead Consumption, thousand tonnes 10,029 10,556 10,779 10,871 10,997 11,128
Lead Consumption, thousand tonnes, % y-o-y -8.5 5.2 2.1 0.9 1.2 1.2
Lead Inventories, thousand tonnes 619 703 718 718 708 646
Lead Inventories, thousand tonnes, % y-o-y 16.1 13.6 2.1 0.0 -1.4 -8.7
Lead Stocks-to-Use, % 6.2 6.7 6.7 6.6 6.4 5.8
Lead Production Balance, thousand tonnes 86 84 14 0 -10 -61

Supply: To Slow Among Majors

Global refined lead production growth will remain weak on the back of a muted price recovery and a slowdown in mined lead production, which will have a knock-on effect on refined lead supply growth. During 2016-2020, average annual growth will average 1.8%, slower compared to 5.2% during 2011-2015.

China:

  • China's refined lead production growth will stall on the back of the country's economic slowdown and increasingly stringent environmental regulations. Stricter environmental regulations in China will result in the closure of lead refineries, thereby directly impacting refined lead production growth over the coming years. Despite the slowdown in China's economy, the country will remain the dominant refined lead producer over the coming years, and will account on average for 38.6% of global refined lead production during 2016-2020. We forecast China's lead production growth to average an annual 2.2% during 2016-2020, following a 4.0% and 17.0% output contraction in 2014 and 2015, respectively.

Rest Of World:

  • We expect growth ex-China to stagnate or decline for the sector's top five producers. For instance, South Korea's refined lead output growth will average just 1.3% during 2016-2020, following average annual growth of 20.1% during 2011-2015. US lead production will average annual growth of 1.0% during 2016-2020, following an average annual decline of 1.0% during 2011-2015.

  • Within Europe, output growth will average lower as well. For instance, over the first nine months of 2016, according to the World Bureau Of Metal Statistics (WBMS), Europe's lead output grew modestly by 2.0% y-o-y, following an annual average of 7.0% during 2015. Within Europe, a notable underperformer was Germany, which saw lead output fall by 7.4% y-o-y during this period. Despite this, we remain positive towards Germany's lead sector as the country's producers of lead will continue to be supported by the country's robust autos manufacturing sector, with lead being a key component of automobile batteries, accounting for 80.0% of domestic lead demand.

Slow Growth Across The Board
Select Countries - Annual Average Refined Lead Production Growth (%)
Source: WBMS, BMI
Lead Production Forecast
2015 2016f 2017f 2018f 2019f 2020f
f = BMI forecast. Source: USGS, BMI
Global Lead production, thousand tonnes 10,116 10,640 10,794 10,872 10,987 11,066
Global Lead production, thousand tonnes, % y-o-y -7.8 5.2 1.4 0.7 1.1 0.7
China Lead production, '000 tonnes 3,808.70 4,113.40 4,216.24 4,216.24 4,216.24 4,228.88
China Lead production, tonnes, % y-o-y -17.0 8.0 2.5 0.0 0.0 0.3
South Korea Lead production, '000 tonnes 611.00 623.83 634.44 642.68 648.47 651.71
South Korea Lead production, tonnes, % y-o-y -8.8 2.1 1.7 1.3 0.9 0.5
Germany Lead production, '000 tonnes 383.83 389.97 395.43 400.18 404.18 407.42
Germany Lead production, tonnes, % y-o-y 1.0 1.6 1.4 1.2 1.0 0.8
United Kingdom Lead production, '000 tonnes 296.95 298.43 299.92 299.92 299.92 299.92
United Kingdom Lead production, tonnes, % y-o-y 0.5 0.5 0.5 0.0 0.0 0.0
Canada Lead production, '000 tonnes 260.22 266.72 273.39 276.12 278.88 281.67
Canada Lead production, tonnes, % y-o-y -11.0 2.5 2.5 1.0 1.0 1.0
United States Lead production, '000 tonnes 1,120.00 1,159.20 1,165.00 1,165.00 1,176.65 1,176.65
United States Lead production, tonnes, % y-o-y -0.9 3.5 0.5 0.0 1.0 0.0

Demand: India To Be Growth Bright Spot

We forecast global lead consumption to grow from 10.1 million tonnes (mnt) in 2016 to 10.7mnt in 2020. This would represent average global lead consumption growth of 1.2% during 2016-2020, higher than the average annual of 1.0% during 2011-2015.

China:

  • In China, lead consumption has increased significantly in 2016 due to strong vehicle production growth, which is quite significant as the country's automotive sector accounts for 75.0% of the country's lead demand. For instance, over the first nine months of 2016, vehicle output grew by 15.6% y-o-y. Other demand drivers are the country's electric bicycle and motorcycle sector, which accounts for 29.0% and 5.0% of lead demand, respectively. Our Autos team forecasts total vehicle production to grow 5.2% in 2017 and at an annual average of 5.7% to 2020, providing resilient support to lead demand in the coming years.

Rest Of World:

  • We expect growth in the global automotive sector, primarily driven by India, to boost demand for refined lead over the coming years. This is due to auto batteries accounting for about 80.0% of total lead demand. We expect demand growth to remain resilient due to strong production by Exide Industrie s, which is India's largest storage battery producing company, focused on the segment of automotive and industrial lead-acid batteries. Further, companies like Amara Raja, which is India's largest selling automotive battery brand, will continue to be a key driver behind lead demand. Amara is keen to expand the firm's product portfolio, in order to include battery applications in solar, electric vehicle and defence, which will continue to provide resilient demand for lead over the coming years. In light of the above, our Autos team forecasts vehicle sales to grow 6.0% in 2017-2018, supported by low borrowing costs, subdued inflationary pressures and strong economic growth.

  • While we expect recovery in the global automotive sector, this will be a very gradual process. For instance, our Autos team forecasts vehicle production growth in the US to average 1.8% y-o-y during 2016-2020, significantly more slowly than the 9.3% during 2011-2015. In terms of vehicle production, output will grow from 12.4mn units in 2016 to 13.2mn units by 2020.

India To Be Lead Demand Bright Spot
Select Countries - Average Annual Refined Lead Consumption Growth (%)
f = BMI forecast. Source: WBMS, BMI
Lead Consumption Forecast
2015 2016f 2017f 2018f 2019f 2020f
f= BMI forecast. Source = National Sources, BMI
Global Lead consumption, thousand tonnes 10,029 10,556 10,779 10,871 10,997 11,128
Global Lead consumption, thousand tonnes, % y-o-y -8.5 5.2 2.1 0.9 1.2 1.2
China Lead consumption, '000 tonnes 3,948.15 4,382.45 4,470.10 4,470.10 4,470.10 4,470.10
China Lead consumption, tonnes, % y-o-y -15.0 11.0 2.0 0.0 0.0 0.0
South Korea Lead consumption, '000 tonnes 531.00 538.96 552.44 560.73 566.33 569.16
South Korea Lead consumption, tonnes, % y-o-y -11.6 1.5 2.5 1.5 1.0 0.5
Germany Lead consumption, '000 tonnes 352.75 357.33 361.62 365.60 369.62 373.68
Germany Lead consumption, tonnes, % y-o-y 1.0 1.3 1.2 1.1 1.1 1.1
United Kingdom Lead consumption, '000 tonnes 214.27 212.13 210.01 207.91 205.83 203.77
United Kingdom Lead consumption, tonnes, % y-o-y -24.6 -1.0 -1.0 -1.0 -1.0 -1.0
Canada Lead consumption, '000 tonnes 4.80 4.90 4.99 5.04 4.94 4.70
Canada Lead consumption, tonnes, % y-o-y -15.0 2.0 2.0 1.0 -2.0 -5.0
United States Lead consumption, '000 tonnes 1,620.00 1,628.10 1,636.24 1,644.42 1,644.42 1,660.87
United States Lead consumption, tonnes, % y-o-y -3.0 0.5 0.5 0.5 0.0 1.0

Trade: Price Uptick To Curb Exports

We expect Chinese refined lead exports to contract due to a tightening of the market over the coming years, in contrast to the country's exports growing by 54.9% y-o-y during 2015, with exports totalling 415kt. However, we expect exports to decrease over the coming years on the back of a gradual increase in lead prices. Furthermore, the 10% export duty on lead exports will curb Chinese lead smelters' interest to increase exports, as their competitiveness will decrease.