Industry Trend Analysis - Bleak Future For Lead - AUG 2016

BMI View: The US lead mining industry will see steady declines in production, as low lead prices and tightening environmental regulations weigh on producers' profit margins over the coming years.

US lead production will fall on the back of poor global market conditions and elevated domestic costs. We forecast US lead production to fall from 377 thousand tonnes (kt) in 2016 to 343kt by 2020. High frequency production and company data support this view. For instance, over the first four months of 2016, the country's lead sector, dominated by Teck Resources, Hecl a Mining and privately held Doe Run Company, posted a 14.7% decline in production, highlighting a significant downside risk to our already negative production forecast for a 2.0% contraction for the year. In Q116, Teck and Hecla reported average declines in cash flow from operations of -15.9% and -12.5%, respectively.

Top Three Miners To Face Headwinds
US - Mined Lead Production Market Share By Company (%), 2015
Source: BMI, Bloomberg, Company announcements

Weak Project Pipeline Will Not Restore Growth

The country's limited and early-stage project pipeline will not contribute to lead production growth over our forecast period to 2020. While recent developments suggest the projects will remain on firms' radar over the coming quarters, reaching production remains a distant goal. For instance, on May 17, Australian miner White Rock Minerals announced the acquisition of Atlas Resources' Red Mountain polymetallic project in Alaska. The former will expand the exploration programme at the deposit, which historically includes two known zinc-silver-lead-gold deposits. Further, On July 4, Nevada Zinc Corp reported high-grade zinc-lead mineralisation results from an ongoing drill programme at the Lone Mountain project in Nevada.

Outward Bound Ores, Incoming Refined
US - Refined Lead Imports & Lead Ores Exports ('000 tonnes)
Source: Trade Map

Green Movement To Favour Recycling Over New Projects

The US lead industry will see increasing competition from recycled products as environmental awareness translates into sustainable development. For instance, Aqua Metals' AquaRefinery recycling facility in Nevada is set to commence operations by the end of 2016, reaching a capacity of 160 tonnes per day by 2018. The plant will use AquaRefining technology to sustainably recycle lead-acid batteries, looking to replace tradition lead smelters. Indeed, in 2013, Doe Run closed the last US lead smelter, citing expensive air-quality standards. With the lack of refining capacity and shrinking domestic demand growth, the US exports the majority of its mined lead - 354kt of the 385kt produced in 2015 - and imports refined lead.