ISRI Convention – Lead, Zinc Expected to Continue Flat Outlook

During the recently concluded Institute of Scrap Recycling Industries’ annual convention, two speakers discussed the short and long-term outlook for both lead and zinc. The conclusion from both speakers was that despite the surge in demand from China, the overall market for lead and zinc show very little in the way of great upside potential.

Huw Roberts, with CHR Metals, a British-based consulting group for the global base metal markets, noted that both lead and zinc remain close to their all-time lows in real terms.

Roberts cited weak economic conditions in both North America and Europe as the reason for the sluggishness. These two areas have very mature economies, and will not likely create the strong demand for lead and zinc.

At the same time, Roberts noted that the global surplus in smelter capacity to treat lead and zinc mine production is working to cap any run in the LME prices for either of these two metals.

While the less than upbeat look at North America and Europe casts a pall over markets, the Asian market is whether there shows tremendous upside potential. Roberts noted that demand growth is very strong in Asia. Further emphasizing his point, he added that developments in China are absolutely key for both metals.

Looking back at the past decade, Roberts pointed out a number of “profound changes” for lead. These included the following: mine production of lead can only satisfy a diminishing share of market demand, increasing future reliance on secondary output; distinction between primary and secondary production of lead is becoming increasingly blurred; China is now a major influence on global markets; and the telecom bubble and lead demand growth has dissipated.

In his analysis of China, Roberts noted that “China’s lead consumption and recycling will continue to grow rapidly for some years yet. Demand for SLI batteries from rapidly expanding domestic vehicle production and fleet. High level of infrastructure spending on telecoms and IT networks fueling domestic demand for industrial batteries.

However, Roberts adds, “Exports of SLI and industrial batteries also are rising very rapidly.”

As for the future, Roberts says that global vehicle production and fleet growth will underpin demand for SLI batteries, especially in Asia. Also, there will be a much slower growth period for industrial batteries. There aren’t any significant new uses for lead. And, Roberts adds, all other uses are either stable or declining.

In conclusion, Roberts says that future growth in lead demand can be met by increasing in secondary output, even though current recycling rates are already high in all regions.

Steve Stack, sales manager for Doe Run Co., also noted that demand for lead was basically either flat or declining over the past several years. In statistics with his presentation, Stack shows that while U.S. demand climbed from 1.134 million tons in 1980 to 1.762 million tons in 2000, the figure now is declining, with forecast U.S. consumption down to around 1.540 million metric tons.

Meanwhile, the U.S. imports of SLI lead-acid batteries continues to grow.

For zinc, a similar situation is taking hold. Key issues for the zinc market, according to Roberts, include:

Too much zinc – inventories globally stand at more than 11 weeks of current annualized demand; zinc prices remain at their lowest level, in real terms, I n living memory; earlier over-investment in new capacity has depressed returns on capacity; but still expansions are occurring in spite of a need for rationalization.

Reflecting the problem with overcapacity, Roberts noted that 1999 was the last year global zinc market saw a supply/demand deficit; and in 2001 and last year the combined global zinc market surplus was 840 kilotons.

Reflecting the swing between an oversupply and deficit, between 1999 and last year zinc mine production increased by 10.4 percent, zinc metal production rose by 15.1 percent, but zinc demand rose only 8.8 percent.

The result is a growing overcapacity of zinc production throughout the world. While there has been some cutbacks in zinc operations, more cutbacks are needed to bring supply and demand back into balance.