Auto battery market decline to hurt global lead prices

Lead’s recent plunge on the London Metal Exchange signals the end of the price uptrend which spanned the last several months.

And one of the major factors in the drop price will be a 3% decline in the pivotal U.S. auto battery market this year.

So says Chase Econometrics in its quarterly forecast of world lead markets through to the fourth quarter of 1989.

“Lead prices will trend sideways to downward for the next several months,” the report states. “In the first place, rising production threatens to flood the supply-demand balance. And lead inventories held on the LME and by producers will rise toward 1986 highs by the middle of this year.

“This will be a year when production rises much more rapidly than demand. The lead market is coming off a year in which lead mine production fell about 8%, mainly because of labor strife in Peru and Australia.

“But the strikes have been settled and the mines in those countries are already producing. Also, the newly formed Doe Run joint venture, which controls 60% of U.S. lead mining capacity, recently reopened the Buick Mine in Missouri. On top of all that, secondary lead production is very high. In all, we expect refined lead production to total 2,310 thousand tonnes this year, a 3.4% increase over 1986 production.

“To absorb that supply, world lead consumption would have to rise 3%. Unfortunately, the outlook for lead consumption is for a very slight rise this year. In the United States, where batteries account for approximately 70% of total lead demand, automakers will produce 6% fewer cars, translating into a 2% to 2.5% drop in over-all demand. European lead demand will rise only 1%. And total non-socialist world demand for lead will be up less than 1%.

“Therefore, demand growth will not be nearly strong enough to rescue the international lead market, which will build lead inventories by almost 100,000 tonnes this year.

“The effect of over-supply and under-demand will be felt for the next two years. Forecasts indicate that world lead prices will average below 17 cents a lb in real terms for the next two years.”