Last Updated : 09 November 2012 at 16:05 IST
Lead may outperform Base Metal complex into year-end: Barclays
Source :Barclays research
Tightness in the lead market is now at a global level. In the US and Europe, demand from the industrial and auto sectors has picked up while a shortage in scrap units as well disruption related constraint on primary output has further tightened regional supply.
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With stocks-to-consumption ratio fallling to its lowest level since 2010 at just over two weeks, Barclays believes that lead will outperform the complex into year-end.
After a pullback in line with broader market trend in October, early November has seen a resurgence in lead prices largely independent of the rest of the complex. Front-end LME time spreads have also moved into backwardation in October and are currently at the tightest in 12 months.
Similarly, physical premia in all key demand regions ex-China have risen firmly since mid-year. In fact, in the US, premia rose to record levels in October.
“Although delays on the delivery of metal from LME warehouses have exacerbated the tightness in the physical market, we believe that underlying market fundamentals are the key driver with a global deficit projected for Q4. Indeed, on our calculations, the global refined lead market’s stocks-to-consumption ratio has now fallen to its lowest level since 2010 at just over two weeks. We anticipate that lead will outperform the complex into year-end.” Barclays said in a report.
Tightness in the lead market is now at a global level. In the US and Europe, demand from the industrial and auto sectors has picked up while a shortage in scrap units as well disruption related constraint on primary output has further tightened regional supply.
Given seasonal support for demand and approaching maintenance shutdowns at smelters (alongside delays on new capacity ramping up, such as La Oroya in Peru), Barclays do not see the tightness dissolving near term in either region, even if material is redistributed from other regions.
Battery demand resulting from the fallout from Superstorm Sandy will also boost US lead consumption. The Chinese market remains tight, albeit currently balanced compared with H1’s deficit due to the effect of higher domestic refined production levels.
The demand picture in China is robust though, with Chinese lead acid battery (+26% y/y) and E-bike (+29% y/y) production still strong in September and likely well supported in Q4 by seasonal trends. We see limited downside to lead prices in China unless demand underperforms.
