Commodity Online
Lead and zinc prices have been in thrall to copper in April and early May, with prices trading wildly in $350/t ranges. LME three-month lead started April at approximately $1,250/t before reaching a six-month high of $1,520/t on 16th April. It stood at around $1,435/t on 15th May.

LME stocks have leapt by more than 13,000t in the three weeks to 15th May, to almost 74,000t. Besides echoing copper, lead's price strength can be traced to a number of reasons. The normally recession-resistant replacement battery sector, which accounts for about 40% of lead offtake, has benefited from the unusually cold winter in the northern hemisphere.

In addition, we estimate about 360,000t of lead production has been cut in 2009 due to the severe cuts by zinc miners; lead is produced primarily as a by-product from zinc mines. This has tightened the market considerably, leaving LME stocks at no more than three days' worth of consumption.

Adding to this is the fact that China has become a net importer of lead. In 2007 it exported a net 211,000t, and in 2008 a net 2,700t. In Q1 2009 it imported 48,320t of refined lead, up 826% year-on-year. Also supporting the price was the suspension of US-based Doe Run's La Oroya lead-zinc-copper smelter in Peru, which produced 114,000t of lead in 2008. It has now restarted, albeit at reduced capacity.

LME zinc stocks have declined, falling to about 10 days' worth of consumption, while the three-month price has gained 15% since April to reach $1,486/t on 15th May. Much of the LME stock has been sucked into China to feed state and consumer restocking programmes, which in turn have opened a strong arbitrage trade between the higher Shanghai price than that of
the LME, encouraging further imports.

There is little fundamentally in the shortterm to keep the price at such a high level, but zinc, more than any other base metal, entered into recessionary territory almost 18 months ago and the amount of mine and smelter production cuts and closures reflects this.

We estimate about 1.6 Mt of mined zinc production has been cut or closed and 1.4 Mt of refined zinc output in 2009. Importantly, some of the mine closures are likely to be permanent, while others will take time and require financing to restart.

Lead & Zinc Outlook
Lead looks the brightest fundamentally of all the base metals besides tin. The low level of LME stocks and tightness in near-term supply will support the price over the next month.

With zinc standing to benefit from the Chinese infrastructure-focused stimulus package more than the other base metals, besides perhaps copper, we expect to see some tightness in the market later in 2009, as some real demand returns. Short-term LME threemonth price: lead: $1,200/t-$1,470/t, zinc: $1,250/t-$1,650/t.

Courtesy: Fortis Metals Monthly

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook