A peak season for lead consumption has arrived

SHANGHAI, Sep 4 (SMM) – A peak season of lead consumption has arrived, SMM believes, as prices of the major consumer, lead-acid batteries, climbed and battery inventories across producers and distributors fell.

Lead on the Shanghai Futures Exchange shrugged off weakness seen in the first half of this year and began its rally in July. Morale among lead longs further improved since the middle of August, when a high consumption season is believed to have started.  

Lead consumption usually peaks in August-September. SMM data for 2017-2019 showed that lead-acid battery producers in China operated at the highest levels throughout a year in the two months.

Battery prices rallied for the first time this year in July, as producers looked ahead to a demand recovery. SMM assessments showed that prices of 48V/12AH, a typical battery used in electric bikes, have gained 8.7% as of September 4.

As battery prices climbed, battery stocks moved from producers to distributors, while inventories at distributors failed to expand. This indicated that battery demand did pick up and a peak season for lead consumption have arrived.

Battery producers tend to swing to the highest gear in September. Lead consumption is expected to remain robust this month, but slip from a year earlier as the economy grows slower and the new e-bike standards went into effect earlier this year.

Potential production restrictions on environmental concerns are likely to add fuel to the lead price rally, as authorities may require smelters to curtail production or suspend ahead of the country’s 70th founding anniversary in October. SMM learned that some regions in Hebei and Henan provinces have issued informal notice on production curbs.

Refined lead production in China rose 45,000-50,000 mt in August, as expected, while social inventories declined over 9,000 mt, or 23%, showed SMM data. Inventories across smelters did not expand, either.

Output of refined lead is expected to hold stable this month, as Yuguang Gold & Lead and Yunnan Mengzi conduct maintenance and some smelters ramp up production.

Secondary lead smelters saw their profit margins recover, but the price discount for second lead against primary materials failed to widen from 50-100 yuan/mt, as previous environmental probes tightened supplies of second lead bullion.