Sept. 4 (Bloomberg) -- Lead, the best performer on the London Metal Exchange this year, surged to the highest price in almost 16 months as China vowed to shut substandard smelters after thousands of children were poisoned.

People in China are angry “that children are involved in poisoning cases, which is why the government must take harsh measures and show it is serious about punishing offenders,” said Liu Biyuan, an analyst at GF Futures Co. The country is the world’s biggest lead producer and consumer.

The metal, used in batteries, has more than doubled this year, partly on concern that production may not keep pace with rising Chinese demand. There was a “buying panic” in the London market for lead, according to Citigroup Inc. Excessive exposure may make children less intelligent, doctors say.

Lead for delivery in three months jumped as much as 4.7 percent to $2,387 a metric ton, the highest level since May 8, 2008, and traded at $2,355 at 2:38 p.m. in Singapore. The metal rose as much as 8.8 percent yesterday after the initial report of the planned environmental crackdown.

There was “an explosive move in the market,” Jiang Donglin, Shenzhen Zhongjin Lingnan Nonfemet Co.’s research department manager, wrote in an e-mail. At least 200,000 tons of lead capacity is at risk of closure, according to Jiang. China produced about 1.947 million tons in the first seven months.

Sickened Children

The country will “strictly enforce” anti-pollution rules for nonferrous smelters, Zhou Shengxian, head of the Ministry of Environmental Protection, said yesterday in a report. China is investigating a third lead-poisoning case in the past month involving children, according to media reports.

Chinese lead makers’ shares surged today on the metal’s gain. Henan Yuguang Gold & Lead Co., the nation’s top producer, gained by the 10 percent daily limit to 18.30 yuan, and Shenzhen Zhongjin Lingnan Nonfemet added as much as 9 percent.

The supply “fears turned the market into a buying panic,” Citigroup’s David Thurtell wrote in a Sept. 3 note, referring to lead’s gain on the London Metal Exchange. China’s “smelter problems are potentially much more significant to short-term supply” than the 2007 closure of Australia’s Magellan mine, which helped to double prices, Thurtell wrote.

Global lead production was about 4.241 million tons in the first half of this year, in line with metal usage of 4.204 million tons, according to estimates from the International Lead and Zinc Study Group.

Lead producers that don’t meet environmental standards will be shut down, the ministry’s Zhou was quoted as saying in the report, sourced from the China Environment News. Potential entrants to the smelting business won’t be allowed to start output unless they meet the rules, Zhou was cited as saying.

Serious Harm

While environmental protection work had advanced in China, “conditions in our country are still very severe,” Zhou was cited as saying, highlighting new pollution problems from lead, mercury and cadmium. These had “seriously harmed the health of local residents, negatively impacting society,” Zhou said.

A routine blood test conducted on 1,000 children in Kunming, capital city of Yunnan, found 200 who had “excessive” levels of lead, the China Daily reported on Aug. 31. There are also lead-poisoning probes in Shaanxi and Hunan provinces.

Children are especially vulnerable to lead poisoning, which can hurt brain function, the World Health Organization has said. There is “no known safe blood level for children,” according to Vivian Tan, a spokeswoman for the WHO in China.

Melamine Cases

China has struggled to implement health standards at industrial and food-manufacturing plants. At least six children died in China and 300,000 others fell ill last year after drinking milk formula contaminated with melamine, a chemical used to make plastics.

Lead-acid battery production by China may jump 45 percent next year as the nation boosts alternative-energy use in transport and construction, according to an estimate last month from the largest producer, Tianneng Power International Ltd.

China’s car sales surged 31 percent to 5.37 million units in the first seven months of this year after the government cut retail taxes and began handing out 5 billion yuan ($733 million) in subsidies to boost demand.

Demand for lead is “going to keep going up, not just for bicycles, but also for cars,” according to Sept. 1 comments from Bob Takai, general manager of financial services at Sumitomo Corp. “Fundamentally, it is very strong.”

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

Last Updated: September 4, 2009 02:40 EDT