Nonferrous Department

Panelists at the Institute for Scrap Recycling Industries Inc. (ISRI) Annual Convention Spotlight on Lead and Zinc looked at lead and zinc as they relate to other LME metals and at China’s role in the metals’ fundamentals.

Joseph Spiciarich of Penoles Metals and Chemicals Inc., Stamford, Conn., said China will likely surpass the U.S. in lead consumption in 2005. Although U.S. primary lead production is declining, recycled production is slowly increasing thanks to the high rate of battery recycling in the country, he told attendees of the ISRI Convention, which took place in late April in Las Vegas.

U.S. consumption of lead is declining largely because battery production is moving to Mexico and the Pacific Rim, Spiciarich said. Lower labor costs and legal and health concerns have precipitated this migration in manufacturing.

However, Spiciarich did not paint a muted picture for lead. He predicted that lead usage will grow because the metal has no substitute in transportation batteries. He said electric vehicles, which require larger batteries, are a growing segment of the transportation market.

Despite this good news, he did point out a number of challenges to the industry, such as inadequate investment in exploration, mining and smelting as well as lead’s negative image.

Zinc fares better than lead because it does not suffer from the same PR problems, Spiciarich said, though it does take a long time for demand-related information to get from the smelter to the miner.

China is the top zinc producer, he said, as well as the top consumer of the metal. The U.S. produces less than a third of the zinc it consumes, with most of the balance coming from Canada and Mexico. The U.S. is home to only two zinc producers, both of which are foreign owned, he added.

Peter Kettle of the CRU Group, London, said that the LME is close to its earlier peak in the mid-90s, thanks to the growth of China’s economy and to increasing investments in commodities.

He said that the lead/zinc sector shows poor consumption growth and slow reactions to the supply and demand relationship. While Chinese consumption of lead/zinc grew 12 percent to 13 percent in the last year, it is the slowest growing part of the Chinese metal economy, Kettle added. However, China is the top Asian battery exporter, showing 87 percent growth last year, he said.

Kettle added that consumption is not an issue for zinc, but it is for lead, with supply deficits forecasted for the coming year. "Over optimism has to be guarded against in the industry," he cautioned.

Battling World Hunger

The strain on the global copper supply could remain as a trend spurring higher prices, though the good news is tempered by accompanying global supply shortages of energy and grains.

East and South Asia’s growing economies are putting a genuine strain on the supplies of many commodities, said David Hightower, a commodities analyst who spoke at the Copper Spotlight session at the ISRI (Institute of Scrap Recycling Industries Inc.) Annual Convention, held in late April in Las Vegas.

"In our opinion, there hasn’t been a more bullish market for commodities in the last 28 years," Hightower, editor of the Hightower Report, Chicago, told attendees.

Hightower and his research associates see demand on oil, metals and food crops fueling a spiral of higher commodity prices and inflation. "When you have tightness of supply, those are classic building blocks for inflation," he commented.

Concerning copper, Hightower noted that even the high prices reached in March for red metals may not be the peak of the cycle, as many investment fund managers are "not completely turned on to copper."

In the near-term, Hightower said, "I see a run-up to $1.48 to $1.50 in the September to October time frame." That forecast is predicated on Chinese metals producers returning to buy in volumes similar to what was seen in late 2003.

"When China shows itself back in the marketplace . . . we’ll see the market put itself back into its bullish fundamentals."

The expected ceiling in copper prices will come in the form of increased mine production, which is in the early stages of ramping up, Hightower said.

More troubling may be the planet’s ability to ramp up grain and petroleum supplies, which does not involve simply re-opening a shuttered mine.