Market prices won't ignite

By Staff -- Purchasing, 2/8/2001

What's happening: Lead use in the U.S. has stalled around 1.68 million metric tons for the past three years now, while the "official" North American price has averaged 44¢/lb. Demand in both Europe and the U.S. had been forecast to rise; instead, it stagnated. World refined lead consumption rose by 2.5% to 6.35 million metric tons in 2000, due mainly to strong growth in Asia, in particular China and Thailand, which resulted in a rise of 6% for the region. The major use of lead is in lead-acid storage batteries. The electrical systems of vehicles, ships and aircrafts depend on such batteries for startup, and, in some cases, batteries provide the actual motive power. Other batteries provide standby electrical power for emergencies, and very large lead-acid systems are designed to provide "peaking" power in such applications as commercial power networks and subway systems. An increasing use is in the uninterruptible power supply systems necessary for voltage control and emergency power in critical computer storage systems. Non-transportation uses for lead include soundproofing in office buildings, schools and hotels. It is widely used in hospitals to block X-ray and gamma radiation and is employed to shield against nuclear radiation both in permanent installations and when nuclear material is being transported. A major problem with lead-and the chief cause of its inability to find new uses-is its toxicity. Another major problem, at least for last year, was its excess supply. After averaging six million metric tons annually for the past five years, supply last year exploded to 6.5 million metric tons. So, the market surplus of 150,000 metric tons helped depress the London Metal Exchange (LME) price to 21¢/lb from 23¢the year before.

Why it's happening: Even though lead-acid battery production has averaged 100 million units for the past three years, lead supply is not a problem. Global output of refined lead metal in 2000 rose 4% to 6.51 million metric tons worldwide. In the industrialized West, an increase of 2.7% to 5.07 million metric tons occurred, of which about 60% came from the recovery and recycling of secondary raw materials. Production increases occurred in a number of countries, most notably Belgium, Canada, China, Germany, South Korea and Mexico. Besides being a major user of lead, the U.S. actually is the world's leading metal producer. Because of the great number of scrap batteries that become available each year, recycled lead supplies more than 60% of domestic annual demand. World demand for refined lead metal in 2001 is forecast to rise by 2.2% to 6.54 million metric tons, but that may be too high. European demand is expected to be flat, while demand in Asia is predicted to increase by 4%. Some analyses, however, suggest that Asian purchasing growth won't be that strong because of reduced export possibilities for Japan, a major world supplier, in North America. The International Lead Zinc Study Group suggests sales growth in the U.S. will rise by 1%-1.5%. It's more likely that fewer batteries will be made and less lead will be used since fewer motor vehicles will be built.

What to expect: Analysts at CRU International in London say that "projected large cuts in output by the major U.S. automobile manufacturers will adversely impact demand and prices for refined lead." So, earlier forecasts of LME lead rising slightly to a 23¢/lb average have been scrapped in favor of 19¢-22¢. That will keep U.S. spot-market prices at 27¢-28¢. This may even be too high, since new reductions in world sales forecasts for electronic products will stifle sales of lead used in batteries for computers and telecommunications systems. Another factor may undercut lead's 44¢"official" price in the U.S. The Environmental Protection Agency (EPA) wants to eliminate alkyl-lead compounds (e.g., tetraethyl and tetramethyl lead) used in fuel additives to reduce "knock" in combustion engines and to help lubricate internal engine components. Lead was banned from most gasoline additives years ago, but still is used in aviation gasoline (used by piston-engine aircraft) and in automobile racecar gasoline.

What's up with LEAD