Lead stockpiles held in so-called commercial warehouses in China, the world’s largest user, have dropped to the lowest level in more than two years as battery makers expand output, boosting demand growth for the metal.
The inventories in Guangdong province and Shanghai, the two main trading regions, fell to about 100,000 metric tons this month, the lowest level since February 2010 and down from a record 300,000 tons in August 2011, according to SMM Information & Technology Co., citing data from a weekly survey. The figure doesn’t include holdings in Shanghai Futures Exchange warehouses, which have dropped 52 percent since the year’s peak in February.
Falling inventories and higher demand growth may support prices on the London Metal Exchange, while boosting profit at China’s biggest lead producer, Henan Yuguang Gold & Lead Co. Chinese battery production expanded to a record in June, according to Barclays Plc, which said that there may be a global lead deficit in the final quarter of this year.
“Compared with other base metals, lead has a relatively good fundamental picture,” said Hu Yongda, an analyst at Beijing Antaike Information Development Co. Demand in China may rise 10 percent to an all-time high of almost 4.5 million tons this year, up from growth of 6.8 percent in 2011, Hu said, citing increased sales of electric bicycles.
Three-month lead declined 21 percent to $1,971 a ton on the LME over the past year as copper and zinc lost 16 percent and nickel tumbled 23 percent. Base metals have declined amid concern that slower economic growth in China, the largest user, will hurt demand. Lead for immediate delivery on Shanghai’s Changjiang market was quoted at about 15,150 yuan ($2,383) a ton today, down 7.6 percent in the past year.
Lead stockpiles monitored by the SHFE declined 40 percent this year to 18,282 tons last week, the lowest level since April 2011, according to bourse data. Reserves monitored by the LME lost 11 percent in 2012, dropping to 315,125 tons last week, the smallest amount since August last year.
China last year started to shut down battery makers and recycled-lead producers that didn’t meet environmental standards after reports of lead poisoning in Zhejiang and Guangdong. As much as 90 percent of battery units were closed, according to a November estimate from the China Battery Industry Association. The Ministry of Environmental Protection also released revised entry criteria for the industry in May.
China’s biggest battery producers are now adding capacity, said Zhang Shu, an analyst at SMM, without providing details. “They want to grab market share after the new industry entry criteria wiped out smaller players,” Zhang said.
Lead production in China rose 8.9 percent to 2.68 million tons in the first seven months of this year from a year earlier, according to data from the National Bureau of Statistics. Output of zinc, nickel and tin declined in the period.
“Orders are picking up at the large battery producers,” said Chen Jianfang, vice president of Nanjing, Jiangsu-based Chunxing Group’s recycled-lead production division, the country’s biggest re-user of lead-acid batteries. “Some companies even find it difficult to deliver in time.”
Lead-acid battery output jumped 21 percent in the first half to 83.4 million Kilovolt-Ampere Hours, according to SMM.
“Demand for lead is very good now,” said Zhang. “The situation may get even better from October as lower temperatures lead to faster consumption of batteries.”
Global lead production may expand 1.1 percent to 10.77 million tons this year, according to an Aug. 16 report from Barclays, with China accounting for 43 percent of forecast output. While supply may exceed usage by 49,000 tons in 2012, there may be a fourth-quarter deficit of 17,000 tons, it said.