The price of lead has increased by over 15% since the start of 2017 to over $2,300 per tonne, making it the best performing industrial metal of the year so far. Lead prices had a strong start to 2016 as well, but this quickly fizzled out while other industrial metals, specifically zinc surged higher through 2016 and into 2017.
Lead and zinc are commonly found in the same deposits with lead the “ugly sister” by-product to zinc. Since mid-2007 lead and zinc prices have, as their nicknames suggest been intertwined with lead at a slight price premium.
Prior to the early 2000’s the price of lead typically traded at a significant discount to zinc, lead being buffeted by frequent hits to demand such as the removal of lead from use in petrol.
Since early 2016 though zinc prices have outperformed lead and gone on to a establish a significant premium. Zinc prices have been supported by the exhaustion of mines such as Century in Australia and Lisheen in Ireland and the decision by Glencore to mothball 500,000 tonnes of capacity at the end of 2015 (about 4% of global zinc capacity). All of these mines produce zinc but they also produce lead too.
If lead prices are to correct for the divergence between the two metals then it would need to rise towards $3,000 per tonne, a 30% increase on current levels.
The single most important commercial use of lead is in the manufacture of lead-acid storage batteries. Compared with other industrial metals, lead scrap accounts for a much higher proportion of total supply, but unlike other industrial metals the supply of lead from batteries is less price responsive, with batteries typically being scrapped when they fail under extremes of temperature.
The potential downside risk for both metals is Glencore. When will it decide to reactivate its capacity? With each mine (the mothballed capacity is spread over 4 mines) likely to take 9-15 months to reactivate Glencore’s CEO has suggested that they would bring them back one at a time. Enough to test the market, without causing it to collapse.
Watch out for more news and higher volatility in late February. This is when the International Zinc Conference is held in the United States and is the time of year when deals are completed in the refined metal market.
Seasonal trends suggest that lead could stabilise over the next couple months with July typically being the strongest time of year for the market.
For now at least zinc’s uglier sister has some catching up, but zinc is likely to continue to play the tune.