Power Shortages in Japan to Drive Demand for Lead Imports

Demand for lead in Japan, the third-biggest economy, is set to climb as the country seeks batteries and generators to help it recover from the destruction caused by its strongest earthquake on record and tsunami.

“I would expect domestic Japanese production to increase” and imports to grow as battery manufacturers struggle to keep up with demand, said Barclays Capital’s analyst Gayle Berry.

As much as 25 trillion yen ($307 billion) of damage resulted from the magnitude-9.0 quake and tsunami, said the government. The disaster crippled the Fukushima Dai-Ichi nuclear power plant, causing radiation leaks, and shut factories, disrupted power and contaminated food and water. Japan consumed 2.4 percent of the world’s lead last year, using 224,000 metric tons, said the International Lead and Zinc Study Group.

Neil Hawkes, an analyst at London-based researcher CRU International Ltd., and Citigroup Inc. join Berry in expecting the recovery to increase lead use. The restart of domestic car production may also bolster demand. The metal advanced 9 percent on the London Metal Exchange since the temblor on March 11, beating the other five major metals on the bourse.

Demand for lead in the U.S. jumped 6 percent in 2005, the year Hurricane Katrina struck Louisiana, compared with “flat to falling” trends in previous years, Berry said in an e-mailed reply to questions from Bloomberg News.

Emergency Services

After Katrina struck “there was an almost immediate pick-up in demand for batteries in everything from back-up generators to uninterruptible power supply” used to provide electricity to sub-stations, hospitals and emergency services, Berry said. That is clearly going to be a priority, she said.

A unit of uninterruptible power supply, known as UPS, contains an average 15 kilograms to 30 kilograms of lead, said Barclays Capital. Lead is likely to see the biggest increase in demand among all the base metals after the disaster, Citigroup said in a report this month.

Demand for lead was expanding this year even before the disaster, said Neil Hawkes in a phone interview on March 29.

“Everyone is talking about reconstruction efforts,” Hawkes said. “Obviously that will be good for steel and copper. For lead, the interesting aspect is that they are going to rebuild the mobile-phone networks. All of these have lead-acid batteries attached to them.”

Power Generators

Global Battery Co., South Korea’s biggest lead-acid battery producer, has seen exports of replacements and emergency power generators jump 20 percent to Japan since the earthquake and tsunami, spokesman Nak Joon Yoon said today.

“It’s not easy to predict the demand outlook for lead at this stage as we don’t know when domestic automakers may be able to resume full operations,” said Kimiyasu Marusaki, general manager of the zinc and lead division at Toho Zinc Co., Japan’s top producer. Most demand comes from the auto industry, he said.

Toyota Motor Corp., the world’s largest carmaker, resumed hybrid-car output on March 24, spokeswoman Shiori Hashimoto said. Nissan Motor Co., Japan’s second-largest automaker, will resume production at all car factories in Japan from April 11, it said.

Toyota may delay the production of at least 500,000 vehicles in Japan because of a shortage of parts and electricity, said Koji Endo, an auto analyst at Advanced Research Japan.

“There are expectations that demand for lead-acid batteries will rise following the earthquake, but I haven’t heard market participants saying orders already jumped,” said Yan Wanxin, a project manager at Liaoning-based state-owned trading company Shenyang Chengtong Metals Co. “Maybe people need to wait a couple of weeks to see orders really coming in.”

Widening Premium

The premium of lead for immediate delivery over benchmark three-month futures in London widened to as much as $44 a ton on March 29, more than three times the level on March 11 and the highest since Feb. 7, signaling a shortage of near-term supply.

“Certainly some investors who are forward-thinking, they can see the bullish potential for lead,” Hawkes said. “That’s what we are seeing. Any dip in the price is well bought into.”

Stockpiles of lead monitored by the London Metal Exchange have declined 5.5 percent since peaking at 297,500 tons on Feb. 15, the highest since March 1995. Three-month lead was little changed at $2,653.5 a ton at 7:53 p.m. Tokyo time today.

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