Lead had a good start but a poor finish in 1990. The record shows that from year- end 1989 to the end of 1990, lead was the worst performing metal in terms of London Metal Exchange (LME) prices. This statement may be somewhat misleading, however, as the metal had a stellar performance in the earlier part of the year. The price almost doubled to US50 cents per lb. from year-end 1989 into the month of March, only to drift below US30 cents in late November to levels unseen since early 1987. It finished the year at US27.5 cents. What happened?
For one, the LME inventories started at a respectable low of 24,475 tonnes early in the year but then dropped to an incredible low figure of 12,900 tonnes on March 13. They quickly rose to 32,600 tonnes in April as the huge backwardation (the cash premium averaged US7 cents per lb. in March) attracted a lot of metal to LME warehouses. LME inventories finished the year-end at 54,725 tonnes. But this is only part of the story. In the background, beyond LME, there was simply a lack of primary supplies in the first half of 1990. Moreover, the consumption profile exhibited a record level in the similar period.
One of the centres of attention was in Europe. Italy, beyond staging the world cup of soccer, hosted the initiation ceremony of surprises of the year with Nuova Samim shutting down. Production setbacks also occurred in Canada, Peru, the United Kingdom and South Africa through the year.
Compensating for the decrease was the increased output in the U.S. and Mexico which boosted their combined mine output by almost 16% in the year and metal output by 3%. Canada’s mine production was off by 10% and its metal output by 22%.
Both Cominco (TSE) and Brunswick Mining and Smelting (TSE) have struggled with labor problems in the year. Cominco continues to operate its old sinter and blast furnace for the lead operations which is rated at 125,000 tonnes per year but running at about 9,000 tonnes per month. The technical problems continue with the new QSL smelter which is rated at 160,000 tonnes per year in the feasibility study. Cominco’s labor force went back to work at the Sullivan and Trail operations but Brunswick’s labor problems persisted into the new year. The operations were still running at about a quarter of their capacity by early 1991.
The Sullivan operation in British Columbia produced 53,000 tonnes of lead-in-concentrates in 1989 and a fraction of it in 1990. Brunswick’s Belledune smelter is rated at about 72,000 tonnes per year of lead metal. The mine produced 66,000 tonnes of lead-in- concentrates in 1989. The figures for 1990 will be cut by half.
Curragh Resources (TSE) another major producer of lead-zinc concentrates at Faro, Yukon, was also negotiating a labor contract at the turn of the year. Curragh is developing its other deposits near Faro, at Mt. Hundere, and getting ready for the Cirque deposit in B.C. The original Faro pit will be depleted in 1991.
To many it was not a surprise when the Caribou mine suspended its operations in New Brunswick. The intended 85,000 tonnes of bulk concentrates for 1990 did not materialize, the capital needs to upgrade the mill became prohibitive and poor metal prices didn’t provide any relief or comfort. Caribou is unlikely to be a producer again, at least in the next few years.
The International Lead Zinc Study Group, in a recent meeting disclosed its forecasts of mine production in 1991 or 2.5 million tonnes while the total refined production (primary and secondary) is expected to reach 44.73 million tonnes. The accompanying table (see end of story) portrays our 1988 to 1990 (preliminary) annual figures along with the quarterly tonnages in 1990 vs 1989, and the squeeze that existed in the market. The study group’s figures for 1991 we find are too optimistic and that will not help lead prices.
In terms of end-use, depending on the particular country, about 60% of the annual output of lead is consumed for battery production. Globally this rate varies from the U.K. being low at 30%, to the U.S. Japan and France consuming up to 75% in this market segment.
The important variable to consider is the new vehicle production in these countries but also the automotive replacement market which can be a bigger influence for prices at lot of times. The later’s demand script consists of the age of the car, the mileage driven and, as well, the extremes in weather temperatures which have a serious toll on the battery’s performance. In the late 1970s, two consecutive cold winters in North America did wonders for lead prices and established all- time record highs.
The penchant for a widely accepted electric car also continues. The commercial production of this type of vehicle remains in negligible quantities but the major automobile manufacturers keep spending research money for a practical solution.
The most recent admittant is Chrysler Corp. The company signed a 28-month agreement with the Electric Power Research Institute “to engineer and develop” an electric minivan. The research will focus on developing a battery supply source and as well the utility infrastructure required for the viability of this type of vehicle.
Obviously, the race for the perfect battery is far from being over but that is a long term issue for lead. In the short and intermediate term the markets have to deal with the economic slowdown and recession in some geographical areas in 1991. The only hope for lead is some supply setbacks in 1991 and that is expected to continue somewhat with Brunswick and Cominco. But the real hope stands with a very cold winter and a real hot summer. An interesting duo of contrasts.005 0000,0606 Terence Ortslan is a senior mining analyst and vice-president with securities firm Merrill Lynch U.S.A. 0611,0009,0107,0009,0107,0009,0107,0106,0107,0009,0107,0009,0107,000 9,0107 QUARTERLY ANNUAL 1989 1990 (000 tonnes) 1988 1989 1990 (P) 1Q 2Q 1Q 2Q Mine production 2,325 2,254 2,340 559 579 588 594 Primary prod. 2,299 2,206 2,150 576 552 512 527 Secondary prod. 2,112 2,205 2,200 551 561 556 556 Consumption 4,356 4,427 4,340 1,091 1,119 1,122 1,080 Metal Stocks (1) 438 400 450 439 415 367 410 Note:0103,0000 (1) Inventories are for the end of each period and consist of stocks at producer, consumer, merchant levels and at the LME. (P) Preliminary figures.
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