China’s 150 Million Electric Bicycles Bolstering Lead Demand: Commodities
The global glut in lead is falling to a five-year low as China, the biggest buyer, consumes a record amount to make batteries for everything from cars to emergency lighting to electric bicycles.
The supply surplus will drop to 8,000 metric tons in 2012 from 78,000 tons this year as China, which accounts for about 44 percent of global demand, uses 9.5 percent more, Morgan Stanley estimates. Prices may rise as much as 19 percent to $2,500 a ton next year, according to the median estimate of 18 producers, analysts and traders surveyed by Bloomberg.
While lead slumped 18 percent this year amid mounting investor concern that slower economic growth will sap the use of raw materials, analysts and traders say prices will rally because consumption is expanding. Demand will advance for a 10th consecutive year in 2012, and for at least four more years after that, Morgan Stanley predicts.
“Forty-five percent of demand is recession-proof,” said Stephen Briggs, an analyst at BNP Paribas SA in London who has been following the market for three decades. “Demand for replacement batteries will continue at more or less the same rate whether there is a recession or not a recession.”
Lead fell to $2,100.50 a ton on the London Metal Exchange this year, heading for its first annual decline since 2008. That compares with a 21 percent drop in the LMEX index of six industrial metals. The Standard & Poor’s GSCI gauge of 24 commodities rose 3 percent, led by gasoil, gold and feed cattle. The MSCI All-Country World Index of equities retreated 9.9 percent and Treasuries returned 9.2 percent, a Bank of America Corp. index shows.
About 80 percent of lead is used in batteries, according to the International Lead and Zinc Study Group in Lisbon. Production in China, the biggest exporter, may rise about 20 percent in 2012, according to the Beijing-based China Battery Industry Association, which represents more than 700 producers. That will use a total of about 3.3 million tons of lead.
Global supply of refined lead will advance 3.8 percent to 10.22 million tons next year, compared with a 4.6 percent gain in consumption, Morgan Stanley estimates. Global production is valued at almost $25 billion based on this year’s average price.
Chinese demand shored up consumption during the global recession. Growth is now slowing after the central bank raised interest rates three times and lifted the reserve-requirement ratio six times this year to curb inflation. Reserve requirements were cut for the first time since 2008 on Dec. 5. The economy will expand by 8.5 percent next year, from 9.2 percent in 2010, the median of 11 economist forecasts compiled by Bloomberg show.
China’s manufacturing contracted for the first time since February 2009 in November, the China Federation of Logistics and Purchasing reported Dec. 1. Export growth slowed to 13.8 percent in November from a year earlier, the weakest pace since December 2009, according to data released by the customs bureau Dec. 10. Import growth slowed to 22.1 percent.
“The time for an exponential growth of demand in China has passed,” said Shi Lei, an analyst at Cofco Futures Co. in Beijing. “Even if part of lead demand is inelastic during economic downturns, it may still be hard to stand out when all markets are under pressure.”
While the surplus is shrinking, stockpiles in warehouses monitored by the London Metal Exchange rose 73 percent since the start of January, reaching a record 388,500 tons on Oct. 14, bourse data show. That’s equal to about two weeks of demand.
Inventories are now starting to decline, retreating 7 percent since reaching the all-time high. Canceled warrants, a measure of how much metal is on order to be removed from warehouses, touched 47,700 tons yesterday, the most since at least 1997. Metal in warehouses tracked by the Shanghai Futures Exchange has dropped in nine of the past 11 weeks, bourse data show.
Manufacturing in China is expected to expand next year in part because of revised environmental regulations that may be announced by year-end. Restrictions were tightened after hundreds of people were poisoned in Zhejiang and Guangdong provinces in May and June. The government suspended output at almost 90 percent of lead-acid battery makers in the past several months, Cao Guoqing, deputy secretary general of the China Battery Industry Association, said in an e-mail Nov. 15.
China will have 150 million electric bikes by 2015, compared with 120 million in 2010, according to the association. Each bike uses an average of 13 kilograms (28.7 pounds) of lead, according to Brook Hunt, a research unit of Wood Mackenzie Ltd.
Global sales of cars and light commercial vehicles will rise 6.5 percent to a record 79.5 million cars in 2012, according to LMC Automotive Ltd., a research company in Oxford, England. China’s passenger-car sales will advance as much as 10 percent, according to estimates from General Motors Co., Volkswagen AG, Honda Motor Co. and Nissan Motor Co.
Higher lead prices should bolster profit for Melbourne- based BHP Billiton Ltd. (BHP), the biggest lead-mining company. It will report a 2.5 percent drop in net income to $23.05 billion this year, still the second-highest profit ever, according to the mean of 19 analyst estimates compiled by Bloomberg.
“The picture seems to be moving from one of physical surplus to one of physical scarcity,” said Nic Brown, head of commodities research at Natixis Commodity Markets Ltd. in London. “What has been a picture of very strong supply growth in recent years may be beginning to tail off.”
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