Scrap now makes up nearly one-third of primary production in the lead industry as mine supply remains tight, Bank of America outlines in a recent research note to clients.
The lead supply will remain tight this year and will move into deficit in 2011, the February research note explained. The bank’s analysts are forecasting lead prices of US$2,125 per tonne or US96¢ per lb. in 2010 and argue the prices could even spike to US$2,500 per tonne or US$1.24 per lb.
BOA predicts a 6.2% year-on-year expansion of lead demand in 2010, up from a 3.2% year-on-year decline in lead demand in 2009.
Tight mine supply is one factor that will drive up prices, along with the stabilization of the auto industry.
Battery producers buy about 80% of the world’s lead supply and 50% of all batteries are starting, lighting and ignition (SLI) batteries, which are used primarily in the auto sector, the note explains.
“Around 20% of the SLI batteries are sold as original equipment batteries,” the research states. “This sector tends to be driven by car production. The remaining 80% of SLI batteries are replacements, whose demand is driven by the size of the vehicle pool and weather patterns.”
Apart from a recovering auto sector, BOA adds that its “base case remains that the recession has come to an end.” Citing figures from battery producer Johnson Control from its first quarterly update for 2010, auto production in North America and Europe is stronger than expected; China’s auto industry is strong; and demand for automotive batteries has improved with stocking activity at traditional levels and stronger demand coming from the original equipment battery market.
“Partially because of relatively low auto inventories in the supply chain, our auto analysts believe that the downside for auto production is limited, suggesting that demand for OE batteries may improve, and the United States’ lead demand with it,” the report states. “The demand picture is similar for Japan and Europe.”
The report forecasts 9% growth in lead demand in China this year.
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