SMM Summit 2016: Hot Topics of China Lead Market in 2016 and Outlook for 2017

SHANGHAI, Nov. 18 (SMM) – Six major base metals all register big gains so far this year, and in addition to capital factor, what are major driving reasons behind rising lead price, and what’s the outlook for lead market in 2017?

The followings are hot topics discussed at SMM 2016 China Metals Summit (CMS) held in Shanghai from Nov. 10-11.

Collections of Stories in Base Metal Market at SMM 2016 Annual Summit

Lead Price Review 2012-2016

Lead price in China’s market has been on the downward track from 2012 to early 2016, down from 15,000 yuan in 2012, to 14,000 yuan in 2013, 13,800 yuan in 2014, and to 13,000 yuan in 2015, according to SMM data. In recent days, base metal prices surged across the board, with lead on the SHFE climbing above 17,000 yuan per tonne.  

The following three factors are major drivers behind rising lead prices in 2016, SMM lead analyst told the attendees at the summit. 

First: Lead Concentrate Capacity Falls

  Global lead concentrate capacity down  

In 2016, world’s lead concentrate capacities (excluding China) are estimated to fall by 159,000 tonnes, including 36,000 tonnes in newly-increased capacities, 95,000 tonnes in shut-down ones, and 100,000 tonnes in cuts.

  China lead concentrate supply drops   

According to SMM data, China’s capacities of lead concentrate having been cut totaled 135,850 tonnes in 2016, and newly-increased capacities were 117,000 tonnes, with actual increases merely 17,000 tonnes, leaving a net cut of 118,850 tonnes in 2016. The newly-increased capacities mainly come from Guosen Mining and Daliang Mining.

  Lead concentrate TCs fall in 2016  

Supply shortages of domestic lead concentrate is able to been seen from TCs and utilization rates at domestic primary lead smelters. TCs for domestic lead concentrate fell by nearly 1,200 yuan per tonne (Pb content) from the level seen in early 2016, while those for imported ore dropped $65 per dmt. Utilization rates at domestic smelters fell all the way and slid to a low level in August. 

Second: Stricter Environmental Protection Inspections 

Environmental factor is a major factor behind the big drop in domestic ore output. Chinese government launched two rounds of large-scale environmental protection inspections in July and October, respectively, and almost all main producing areas of lead concentrate were on the list of inspections, SMM survey finds, including Inner Mongolia, Guangxi, Yunnan, Jiangsu, etc. 

The stricter inspections also led to large-scale closures of unqualified secondary lead producers, bringing down overall rates at unqualified producers to a low level. SMM preliminary survey shows that output at those unqualified producers is expected to fall by nearly 200,000 tonnes in 2016 on a yearly basis. Utilization rate at qualified producers, however, is estimated to be higher than the level seen in past years, as it was easier for them to secure raw materials after the closes of unqualified ones.

Third: Lead Demand Grows from July

It is a traditionally peak demand period for motive battery sector in July and August, and a surge in demand bolstered lead prices. The off-season set in from September, but soaring lead prices pushed up battery prices, and battery orders increased as a result, also a price driver behind lead price. Moreover, strong buying interest sent down battery inventories from a high level seen in early year.  

Lead Market Outlook for 2017 – Supply

  Lead Concentrate 

In 2017, supply tightness of domestic ore is expected to ease, SMM foresees. Approximately 100,000-tonne ore capacities, newly-added in 2016, are estimated to come online in 2017, and the newly increased capacities are projected to be 59,000 tonnes, which will bring new capacities in 2017 up to 159,000 tonnes.

According to SMM data, China is expected to produce 2.43 tonnes of lead concentrate in 2016, and to import 820,000 tonnes of ores, bringing total ore supply in China’s market up to 3.25 million tonnes. Demand of lead concentrate is estimated at 3.31 million tonnes in China, leaving a supply deficit of 70,000 tonnes. Supply of lead ore in China’s market is expected to grow by 6 per cent on a yearly basis in 2017 due to production resumption, output from new capacities and opening of import window. This will lead to a surplus of 120,000 tonnes in lead concentrate ore market in 2017. 

  Primary Lead 

China’s primary lead capacities have been rising since 2018, and the output growth has slowed down since 2013. SMM latest data find that China’s output of primary lead was 2.45 million tonnes from January to October, with output from November to December expected at around 460,000 tonnes. These, together with output from small producers, will send up China’s total output of primary lead by 5 per cent in 2016, but the growth will slow down to 2 per cent in 2017, with output estimated at 3.29 million tonnes.

  Secondary Lead 

China’s output of primary lead has kept growing since 2008. In 2016, the output is estimated at 2.03 million tonnes based on SMM preliminary data, up 5 per cent on a yearly basis. In 2017, SMM expects output to grow to 2.23 million tonnes, up 9 per cent year-on-year. 

Lead Market Outlook for 2017 – Demand 

China’s lead demand is expected to be stable in 2016, SMM foresees. In the motive battery sector, output growth is higher than the level seen in 2015, and the booming market will release huge battery replacement demand, and this will grow lead consumption from the sector. Lead demand from ignition battery will also keep growing. Moreover, battery’s monthly exports are up, and expects will increase in 2017.

China Lead Supply&Demand Balance

In 2017, SMM expects China’s lead output at 5.45 million tonnes, 12,000 tonnes for imports, and 82,000 tonnes for exports. Lead apparent consumption is estimated at 5.38 million tonnes, with actual demand expected at 5.56 million tonnes. 

Lead Price Outlook

SMM expects LME lead to trade at $ 1,600-2,200 per tonne in 2017, and 12,700-17,300 yuan per tonne for China’s spot lead price, with mainstream price around 13,500 yuan per tonne for the year.