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Barclays expects tightness in lead market to continue into next year. In 2014-15, lead is likely to remain in deficit. China refined lead output is witnessing a sharp contraction with output for June-August faling 12%..

15 Sep 2013

LONDON (Commodity Online): Strong fundamentals, deficit forecast based on International Lead Zinc Group (ILZG) data could push LME lead prices to average $2350 per ton, according to a weekly report by Barclays Research.

Investors should use sub-$2100 movest to build long positions in line with sustained tightening of fundamentals, it added. LME/SHFE price ratio remains firmly at levels which weighs against importing concentrate despite relatively higher international market. Lead seems to be in deficit market as per ILZG data as well as visible stock trends, the report added.

Barclays expects tightness in lead market to continue into next year. In 2014-15, lead is likely to remain in deficit. China refined lead output is witnessing a sharp contraction with output for June-August faling 12% year-on-year.

"We see two key incremental fundamental factors which point to sustained tightness in fundamental conditions unless higher sustained prices prevail; 1) limited growth in both mine and refined supply ex-China; 2) lower refined production in China versus previous expectations. An underappreciated trend
seen year-to-date has been the decline in production ex-China with mine output falling 2%y/y whilst refined output is down 1%," Barclays said.

"We expect this ROW supply constraint to remain in place for two key reasons. First, at a mine level there are a shortage of production growth sources with just Magellan and Mount Isa mines offering even potential for output to rise next year (+80Kt combined). Second, at a refined level the closure of the 120Kty Herculaneum smelter/refinery in the US counteracts ramp-ups at the 40Kty Oued el Heimer (Morocco) and 100Kty La Oroya (Peru) facilities. Scrap battery supply in the US also remains tight preventing any sustained pick-up in secondary production."

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