Lead is widely used in cable sheathing, ammunition, pigments and, most importantly, car batteries. In July, the metal hit a new high of $2,343 per ton, its highest figure in three years. This high was driven by the resurgence of demand for lead-acid batteries post-lockdown as more motorists return to the roads.
Before this, in June, the cash premium over the anchor London Metal Exchange lead price was $35 per ton. This is the most serious squeeze on cash metal since February last year. Much like prior periods of tightness, the squeeze is likely the result of a position clash between some of the larger beasts in the market.
Since the start of the year, lead stocks on the LME have almost halved, hitting 69,525 tons. About 30% of the metal awaits physical load-out while the remaining open inventory is at its lowest level since July last year.
The latest exchange report shows that LME lead off-warrant stocks were 3,500 tons in April this year, which shows that there may not be much out there. The metal is scarce in the United States, which is fully dependent on imports. U.S. physical premiums hit a high of $320 to $375 per ton over LME cash prices, with imports largely affected by the disruption in the international shipping market.
Despite these disruptions, the metal continues to amass in China, while parts of the global supply chain demonstrate signs of stress. Since January, stocks registered with the Shanghai Futures Exchange have increased to more than 130,000 tons, up from 87,000 tons. Over in Europe and North America, the demand for lead-acid batteries is also increasing as more lockdowns are lifted and the need for battery replacements grows. According to the International Lead and Zinc Study Group, the demand for lead had increased by more than 10% in the first four months of this year.
Wood Mackenzie projects that the demand for lead for replacement batteries will increase by almost 6%, to hit 6.5 million tons in 2021. Analysts have also observed that exports of lead-acid batteries have been booming this year.
Tesla recently announced plans to replace lead-acid auxiliary batteries in its Model X and S electric vehicles with Li-ion alternatives. In the green-energy transition, lead will not be popular, particularly if other auto-manufacturers follow the example of Tesla and replace their lead-acid batteries in the near future. However, with the use of lead facing long-term decrease, the market will need to attract investments in order to sustain production and remain in competition with the greener metals.
There is hope, however, given that extraction firms such as Excellon Resources Inc. (TSX: EXN) (NYSE American: EXN) (FSE: E4X2) have lead-rich properties in their development pipeline.
NOTE TO INVESTORS: The latest news and updates relating to Excellon Resources Inc. (TSX: EXN) (NYSE American: EXN) (FSE: E4X2) are available in the company’s newsroom at https://ibn.fm/EXN
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