Lead, the best-performing industrial metal last quarter, is headed for the biggest shortages in seven years as mine expansions slow at a time of record consumption.
Supply will fall 47,000 metric tons short of demand next year as mine production grows 5.7 percent, the least since the global recession in 2009, Morgan Stanley estimates. Prices will average $2,425 a ton in the fourth quarter next year, 22 percent higher than the past three months and more than the anticipated gains in copper, aluminum, nickel, zinc and tin, the median of forecasts from 10 analysts compiled by Bloomberg shows.
The shortages, which Morgan Stanley anticipates will keep growing until 2015, are partly the result of surging demand for the batteries used in everything from mobile-phone towers to cars. Lead usage in industrial batteries will advance at least 10 percent this year, BNP Paribas SA estimates. The prospects for lead contrast with narrowing deficits in copper and tin and gluts in aluminum, nickel and zinc, making analysts bullish on prices even as global growth slows.
“We’re now at the inflection point where lead moves from surplus to deficit,” said Stephen Briggs, an analyst at BNP Paribas in London who has followed metals for three decades. “There’s been virtually no investment in lead for lead’s sake for 30 years. We haven’t yet seen the real tightness.”
Lead rose 7.3 percent to $2,183 on the London Metal Exchange this year, beating the 4.9 percent advance in the LMEX index of six industrial metals. It jumped 23 percent in the third quarter. The Standard & Poor’s GSCI gauge of 24 materials added 4 percent since the start of January and the MSCI All-Country World Index of equities jumped 11 percent. Treasuries returned 2 percent, a Bank of America Corp. index shows.
The analysts were surveyed before the start of LME week on Oct. 15. The annual event attracts thousands of miners, refiners and traders for talks on metals markets and supply contracts. Shareholders in the 135-year-old LME approved a $2.2 billion takeover by Hong Kong Exchanges & Clearing Ltd. in July.
Supply of refined lead, which includes recycled metal, will gain 3.7 percent to 10.89 million tons next year, lagging behind demand of 10.94 million tons, Morgan Stanley estimates. Shortages are forecast for the next four years, it says.
The last dedicated lead mine was opened in 2005, according to the International Lead & Zinc Study Group in Lisbon. The Magellan mine in Australia owned by Toronto-based Ivernia Inc. was halted in 2011 after unacceptable levels of lead were found in dried mud at the bottom of a shipping container transported from its mine. The facility will resume production next year, the company said today.
The shortages may already be appearing based on the premiums being paid for physical supply. Inventories monitored by the LME slumped 20 percent this year and on Oct. 9 were the lowest since January 2011. Those tracked by the Shanghai Futures Exchange tumbled 25 percent. Buyers are paying $95 a ton more than the LME’s cash contract to obtain metal stored in Singapore warehouses, more than twice the average over the past decade, according to Metal Bulletin Plc data.
Consumption was little changed in 2009 as nations endured the worst recession since World War II. LME stockpiles more than tripled that year after prices fell 61 percent in 2008. Demand has climbed every year since 2010, and will advance 4.5 percent next year and 2.4 percent this year, Morgan Stanley says.
The International Monetary Fund cut its forecast for next year’s global economic growth to 3.6 percent from 3.9 percent in a report Oct. 9, saying it sees “alarmingly high” risks of a steeper slowdown. Gross domestic product in China, the biggest lead buyer, expanded at a lesser pace for six quarters in a row.
Higher prices may spur more supply. Mine production surged 9.5 percent in 2010 and 11 percent in 2011 after lead more than doubled in 2009, according to the lead and zinc study group. Output of recycled metal jumped 6.7 percent to 5.42 million tons in 2010, according to Morgan Stanley. The bank anticipates 5.06 million tons this year, the least since 2008, because a warmer-than-average winter in the Northern Hemisphere reduced demand for replacement batteries in cars.
About 80 percent of lead is used in batteries, according to the study group, which has 30 member nations. Global sales of light commercial vehicles and cars, whose batteries contain about 20 pounds of the metal, will climb 5.2 percent to a record 85.1 million units next year, based on projections by LMC Automotive Ltd., a research company based in Oxford, England.
Battery demand has also been boosted by sales of so-called e-bikes, each one requiring 12 kilograms to 55 kilograms (26 to 121 pounds) of lead for its batteries, according to CHR Metals Ltd., a Godalming, England-based lead and zinc research company. Bigger batteries are used in three-wheel e-bikes, while smaller ones are in two-wheel vehicles.
Chinese production rose 4.8 percent to 30.96 million units in 2011 and output this year and next should expand at a similar pace, the China Bicycle Association estimates. About 3 million three-wheelers are produced each year, CHR estimates. About 39 percent of Chinese lead consumption goes into e-bikes, compared with 22 percent for cars and trucks, according to Deutsche Bank AG.
Mining companies are struggling to keep up, in part because yields are dropping. The average ton of ore now contains about 20 kilograms of lead, from almost 30 kilograms in 2000, Macquarie Group Ltd. estimates.
Lead will account for 0.7 percent of the $521.2 billion that producers will spend on mining expansions from 2013 to 2016, according to Wood Mackenzie Ltd. That’s equal to $3.5 billion compared with $160.9 billion planned for copper spending and $118.8 billion for coal, the Edinburgh-based research company estimates.
BHP Billiton Ltd., the biggest lead miner, said Aug. 22 that it put approvals for about $68 billion of projects on hold after second-half profit plunged 58 percent. Its industrial metals unit accounted for 16 percent of revenue in the fiscal year that ended in June, data compiled by Bloomberg show.
The decline in supplies of scrap from old batteries is leaving consumers more dependent on metal from mines. Primary lead smelters in the U.S., which process ore, are fully booked for the next several months, and some buyers may have to resort to imports to meet their needs, according to CRU, a London-based research company. Inventories in LME-monitored warehouses in the U.S. are at the lowest since June 2009.
Battery makers in the U.S. are stocking up on lead in anticipation of a colder winter, according to CRU. The average temperature in New York City in December through February will be 0.5 degree Fahrenheit below normal, compared with 5.2 degrees above normal last year, AccuWeather.com says.
“Refined stocks are being run down aggressively, you see some very strong battery production and e-bike production and at the same time, up until the last couple of months, relatively constrained refined production levels,” said Nicholas Snowdon, an analyst at Barclays Plc in New York. “We see prices continuing to trend higher over the next couple of years.”
The following table shows the median estimates of 10 analysts surveyed by Bloomberg for the average price of six metals in the fourth quarter next year, compared with the actual average in the third quarter of this year.
Q3 2012 Q4 2013 % Gain Estimates $/Ton $/Ton Copper 7,720.85 7,850 1.7 10 Aluminum 1,949.77 2,275 16.7 10 Nickel 16,395.94 18,344 11.9 10 Lead 1,988.95 2,425 21.9 10 Zinc 1,904.58 2,300 20.8 10 Tin 19,279.80 22,500 16.7 7