Lead prices stagnate as demand takes a knock

Weakening demand over the last one-and-half-year has resulted in stagnant lead prices in the domestic market.

Lead prices have gone up by a mere Rs 600 a quintal from Rs 5000 a quintal on May 19, 2004 to Rs 5,600 a quintal on October 12, 2005. The metal moved by $190 to $992 per tonne on the London Metal Exchange during the period under consideration.

Hindustan Zinc is the largest producer of lead in the country with a total production of approximately 85,000 tonne with expanded capacity, while Binani Zinc produces the metal in smaller quantity.

India Lead Limited, which was planning to begin commercial production by the end of 2005, is facing tremendous hurdles owing to environment clearances.

Despite increasing demand from automobile batteries, which use lead acid as its raw material, prices are not picking up. Liquid lead was also consumed massively by the petroleum industry. But the use of liquid lead in petrol was adding more to environment pollution with the discharge of Nox after burning. Hence, the government restricted the use of leaded petrol and promoted unleaded petrol.

Thus, demand of liquid lead from petroleum sector has declined totally, thus increasing stocks and putting downward pressure on prices.

India is endowed with total mineable reserves of about 2,381,000 tonne of lead metal. Internationally, the metal has, however, witnessed a sudden price spurt price in the recent past which was mainly driven by temporary production disruptions, which in turn have caused large exchange inventory drawdowns.

However, production growth was better in lead than other base metals, with global refined lead output rising almost 10 per cent on year thus far.

The upside potential is limited to $1,000 for 3-month prices in the near-term, but analysts expect support above $860 over the medium term.

US consumption has remained strong and supply has still not recovered from the closure of Doe Run's Glover refinery two years ago, which took around 115,000 tonne a year of capacity of the domestic market.

The ongoing strike at Teck Cominco's 90,000 tonne a year Trail smelter has also added to the upward pressure on prices. Although rising consumption and strike issues have supported prices, the recent price gains are nonetheless largely the result of increased activity by fund investors.

The current lead market tightness is demonstrated in the latest International Lead and Zinc Study Group data, which shows that global lead output for January through July was 4.293 million tonnes.

Consumption was 4.382 million tonne for the same period, leaving a supply-demand deficit of 89,000 tonne. Yet analysts believe this deficit is set to move into surplus by the year-end.

Global lead output during January-August was 4.89 million tonne, up 431,000 tonne on the year, while its consumption was at 5.010 million tonne, up from 4.717 million tonne a year earlier