Too Many Battery-Powered Bikes in China Take Charge Out of LeadAgnieszka de Sousa
Under the seat of almost every one of the 180 million electric bicycles tooling around China’s congested streets and alleyways is one sign of a fading global lead market.
The metal is used in the 24-pound (11-kilogram) batteries powering bikes that now outnumber cars, trucks and buses in the world’s fastest-growing vehicle market. While lead prices jumped in April by the most in two years, fueled by smaller stockpiles and reduced mine output, e-bike sales are expanding at the slowest pace in at least a decade and more batteries are being recycled or replaced with lighter ones made with lithium.
China uses half of the world’s lead -- mostly in batteries for everything from vehicles to equipment backing up the power grid. With a sluggish economy, the recent price gains simply aren’t sustainable, according to Macquarie Group Ltd. and Societe Generale SA. Lead production will probably exceed demand for a fifth year, leaving ample supplies, Macquarie estimates.
“It just doesn’t feel like a market where you would have everything in place for a sustained rally,” Michael Widmer, an analyst at Bank of America Corp. in London, said by phone on May 8. “There still remains the immediate lack of Chinese demand.”
Lead climbed 16 percent last month, more than anything else traded on the London Metal Exchange, rebounding from a four-year low to touch $2,162.50 a metric ton, the highest in almost eight months. The gains were magnified by traders closing out bearish bets rather than new optimism on prices, said Vivienne Lloyd, a London-based analyst at Macquarie.
The metal, which traded at $1,966 at 5:13 p.m. in London, will probably drop to $1,950 by the end of the quarter, the bank estimates.
E-bikes were a big reason for lead rallies over the past two decades. In China, demand for cheap, quick transportation boomed as the economy grew to become the world’s second largest, prompting millions of people to move from rural areas to the cities for jobs. Now, the country faces the slowest growth since the 1990s, along with packed roadways and more traffic fatalities.
The market for e-bikes in China grew from zero in the late 1990s to doubling every year for several years until mid-2000’s, according to Christopher Cherry, a professor at the University of Tennessee at Knoxville. E-bike sales will rise 2.4 percent this year to 29 million, based on estimates from Navigant Research Inc., a Boulder, Colorado-based consultancy.
“Cities are getting larger, more spread out and harder to ride an e-bike in, and more cars are getting on the road,” said Cherry, who has researched e-bikes for a decade. “It’s getting more dangerous for cyclers.”
The vehicles account for 15 percent of total demand for the metal, up from 5 percent a decade ago, according to the International Lead and Zinc Study Group, or ILZSG.
Also hurting lead demand is a shift to lithium batteries, which power less than 10 percent of new e-bikes, according to Ed Benjamin, senior managing director at eCycleElectric LLC, a Fort Myers, Florida-based consulting firm. That may increase to 30 percent by 2017, data from Paris-based bank Natixis SA show.
Old bikes and used-up batteries add to metal supply because the parts can be broken down and recycled. China will use 1 percent more lead this year than 2014, Lisbon-based ILZSG said in April. That’s down from the group’s October forecast of 2.9 percent.
At the same time, production is slowing. Falling prices caused Ivernia Inc. to close Paroo Station in Western Australia this year. MMG Ltd. is also shutting its Century zinc and lead mine in Australia.
“Lead is a supply story,” Stephen Briggs, an analyst at BNP Paribas SA in London, said by phone May 1. “Nobody’s developing new lead mines.”
Holders of lead have drawn down stockpiles to the lowest level in more than two years, according to warehouse data tracked by exchanges in London and Shanghai.
That’s not as bullish as investors think, according to Robin Bhar, an analyst at Societe Generale, who said the metal probably is just being moved to other storage facilities rather being used by manufacturers. Another negative sign: China is exporting more lead, which may mean domestic demand isn’t keeping up with supply.
“If, like us, you think fundamentals will ultimately drive the price for the remainder of the year, then you have to be concerned about the picture in the Chinese market,” Nic Brown, head of commodities research at Natixis, said in a May 7 interview. “We don’t see any sign of it turning around.”
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- Morgan Stanley Says Stock Slide Was Appetizer for Real Deal
- U.S. Stocks Fall With Treasuries, Dollar Climbs: Markets Wrap
- U.S. Pays Up to Auction $179 Billion of Debt in a Span of Hours
- Florida Teachers’ Pension Fund Invested in Maker of School Massacre Gun
- ‘No Cash’ Signs Everywhere Has Sweden Worried It’s Gone Too Far