CHENZHOU, Apr 3 (SMM) – The annual average of lead prices on the Shanghai Futures Exchange are likely to fall to the 17,000-18,000 yuan/mt region in 2019, down from 19,000 yuan/mt in 2018, as supply in China exceeds demand with moderate consumption growth failing to offset substantial increases in secondary lead output, said Xia Wenming, Senior Lead Analyst at SMM.

A slew of new secondary lead projects or capacity expansion projects came or will come online in 2018-2020, Xia told delegates at the SMM Zinc and Lead Summit on Wednesday April 3 in Chenzhou, Hunan province.

On the backdrop of industrial concentration, promoted by environment protection and industrial upgrading initiatives, the majority of new secondary lead capacities have secured approvals from the authorities, while output across secondary lead smelters that do not have production permits is expected to further shrink to 150,000 mt this year.

Xia expects that about 4.1 million mt of lead-acid batteries would retire to be available for recovery in 2019, and that output of secondary lead in China will likely increase by over 200,000 mt this year.

For primary lead, operating rates across smelters in China will climb this year after environmental authorities scrapped blanket output cuts for heavy industry. The volume of primary lead capacity in China, however, will reduce by about 100,000 mt/year in 2019 due to the ban on blast furnaces and business structure adjustment at some smelters.

With lead stocks across LME-registered warehouses falling to record lows, the ratio of SHFE lead price to LME lead declined, and this reduced import arbitrage opportunities. China’s lead imports are likely to shrink from a year ago, but remain above 100,000 mt as duties on lead imports were lowered, Xia added.

The lead-acid battery market in China, the top lead consumer, faces challenges from policies, lithium-ion batteries, sluggish automobile and motorbike markets, the advent of 5G and low-cost countries, Xia said. This will limit capacity increase at home, keeping lead consumption from substantially growing.

New national standards for electric bikes, effective from mid-April, encourage lighter products. This, together with shrinking production of electric bikes after a development peak, will lower lead consumption in electric bikes.

Another headache from government policies is the push for cascade utilisation of retired batteries, which drove China Tower, the country’s largest telecoms tower operator, to completely stop procuring batteries from 2019.

Xia expects LME lead to trade at $1,800-2,350/mt this year, with SHFE lead at 15,500-19,500 yuan/mt.