Lead Smelters in China May Cut Output as Demand Slows, Regulation Tightens

Lead smelters in China, the world’s largest producer and consumer, may idle capacity as demand slows amid a power shortage and as the nation clamps down on polluting units, according to Beijing Antaike Information Development Co.

“Lead demand has been weak and while we haven’t heard of smelters cutting output, many have brought forward their annual maintenance shutdowns, which is essentially the same thing,” said Hu Yongda, an analyst at state-owned Antaike. He didn’t give an estimate of how much capacity may be affected.

Reduced Chinese demand may accelerate a decline in prices in London this year as consumption is forecast by the International Lead and Zinc Study Group to trail output for a fourth year. Moves to tighten rules on production of so-called e-bikes and lead-acid batteries may cool demand for lead, Zhu Yan, an analyst at Xiangyu Futures Co., said from Shanghai.

“The fundamentals for lead are looking quite bleak at the moment, with the announcements about the electric bicycles and battery makers,” Zhu said from Shanghai.

China will clamp down on the production, sale and use of so-called e-bikes that fail to meet standards on speed-limit and weight, the Ministry of Information and Technology said on May 31. Electric bicycles, powered by lead-acid batteries, can’t speed more than 20 kilometers (12 miles) an hour and must weigh no more than 40 kilograms (88 pounds), according to China’s Standardization Administration rules issued in 2009.

A worsening power shortage may also lead to production cuts in the coming months, said Antaike’s Hu. Energy accounts for about a third of lead’s average cost of production, estimated at around 14,000 yuan ($2,160) a metric ton, according to Beijing Cifco Futures Co. analyst Feng Haiying.

Record Power Shortage

An electricity shortfall this summer may be as much as 40 gigawatts, surpassing the 2004 record, according to State Grid Corp. of China. Power prices for industrial and commercial users in 15 provinces were increased on June 1, according to the National Development and Reform Commission.

Battery makers in China have shut factories after the government tightened measures to curb pollution following reports of poisoning incidents in Zhejiang and Guangdong provinces. Zhejiang Haijiu Battery Co., a maker of lead-acid batteries for motorcycles, stopped production on April 29 after it was found to be improperly disposing of lead, the Ministry of Environmental Protection said May 18.

Zhejiang Narada Power Source Co.’s units in Hangzhou halted output after the local government ordered battery companies to suspend operation for inspection of lead pollution, the company said in a statement to the Shenzhen Stock Exchange on May 17.

Battery Makers

Plants in Zhejiang, Guangdong, Sichuan and Henan provinces have suspended production for about two weeks, Xu Hong, head of the lead-acid battery branch at the China Electrical Equipment Industry Association, said on May 30. Battery-makers account for about 80 percent of the country’s lead demand.

“We believe that many of the larger facilities will re- open since they typically meet regulatory standards -- these plants account for the bulk of lead battery production,” Barclays Capital analyst Gayle Berry wrote in a May 31 report. “Smaller unregulated producers are the ones at risk from permanent closure.”

Global usage of lead will increase 5.5 percent to 10.04 million tons in 2011, while production will climb 6.1 percent to 10.16 million tons, resulting in a 123,000-ton surplus, the International Lead and Zinc Study Group forecast in April.

China’s production of lead climbed 30 percent to 1.44 million tons in the first four months of this year as smelters ramped up output in response to higher treatment fees following a greater availability of concentrates. The country’s imports of ore rose 21 percent in the first four months of this year.

Treatment Fees

Smelters are charging about $120 a ton to turn imported ore into refined metal, compared with about $75 at the start of the year, according to Shanghai Metals Market. Those with access to their own mines and power plants are unlikely to curb output if prices stay at current levels, said Zhang Shu, an analyst at the researcher and data provider.

Lead futures in Shanghai have fallen 8 percent since they started trading on March 24, and last traded at 16,875 yuan a ton. Lead prices in Changjiang, Shanghai’s biggest cash market, have dropped 11 percent in the same period.

Three-month lead traded on the London Metal Exchange, which has lost 4.1 percent this year, advanced as much as 2.3 percent to $2,460 a ton today.

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

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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