The Only Way Is Up? Global trends and issues in the lead market. Neil Hawkes (CRU)

Transcription

1 The Only Way Is Up? Global trends and issues in the lead market Neil Hawkes (CRU) BCI Convention, Hyatt Regency, Jacksonville, Florida, USA (2 nd May 2017)

2 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 Lead price rallies in 2H2016 to touch highs last seen in ,000 LME 3-month lead price, daily ($/tonne) 2,500 $2,500/t 2,000 1,500 $1,700/t $2,000/t 1,000 Data: LME

3 Jan Fe Ma Apr Ma Jun Jul- Au Se Oct No De Jan Fe Ma Apr Ma Jun Jul- Au Se Oct No De Jan Fe Ma Apr All LME metal prices lifting through , but zinc running ahead of the chasing pack 200 LME 3-months prices, index to 4 th January 2016 = Nickel Tin Zinc Aluminium Lead 100 Copper 80 Data: LME

4 What has been driving lead price renaissance? Combination of broader metal price drivers and lead-specific price drivers turning more positive over last year or so Broader drivers - stronger US dollar trend starting to stall, Chinese slowdown levelling out, tightening supply picture across metals Lead-specific drivers - steady (if not spectacular) demand growth, tighter global primary (mine) availability, firmer inside China, tightening outlook outside China, smaller stock iceberg already shrinking

5 What s the lead demand picture?

6 Chinese 2000s boom over, but global lead demand staying in positive territory in 2010s 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Refined lead consumption, world ( 000 tonnes) Other Europe Rest of Americas USA Rest of Asia China Data: CRU

7 Long-run rise in global lead demand intimately linked to growing dominance of use in lead-acid batteries 13,000 Refined lead consumption, world ( 000 tonnes) 12,000 11,000 10,000 Non-battery uses 9,000 8,000 Batteries - automotive & industrial 7,000 6,000 5,000 4,000 3,000 2,000 1, Data: CRU

8 Majority of new vehicles are conventional (ICE) rather than new technology (non-ice), though latter s share is rising Light vehicle production by powertrain, world (million units) % shown are Non-ICE as % of total 3.7% 6.2% 7.6% 8.8% 4.7% 2.3% 2.7% 2.8% Non-ICE** ICE* *ICE = Internal Combustion Engine vehicle, includes stop-start vehicles **Non-ICE = HEVs, EVs and Fuel Cell new technology vehicles Data: LMC Automotive

9 Stop-start vehicles rising to account for over 40% of all new vehicles produced globally in % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Stop-start vehicles as % of ICE* vehicle production, global 18% 22% 26% Excluding stop-start Including stop-start 29% Data: LMC Automotive Note: *ICE = Internal Combustion-Engine vehicle 32% 36% 39% 42%

10 Steadier normal global lead demand growth in 2010s compared to earlier Chinese-boom fuelled years 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Data: CRU Refined lead consumption, world ( 000 tonnes) 2.4% per year ( ) % year-on-year change

11 What s happening in lead production?

12 Slower primary supplies diluted in lead by importance of rising secondary supplies Before the recent lift in metal prices, lower earlier values prompted lead-producing polymetallic mine cuts (led by Glencore), alongside well-flagged running out of ore mine cuts (e.g. Century) 2016 marked another drop in global mine output (led by Australia), alongside higher primary smelter demand (led by Korea Zinc) resulting in a marked tightening in global lead concentrate availability So long-standing scramble for scrap has been joined by harder fight for lead concentrate Now waiting for response of polymetallic mines to higher metal prices and lower TCs, including reversal of pricerelated mine cuts Having drained excess feed, primary smelter production path to more closely follow fresh mine production this year and beyond Unlike in other metals, impact of primary production path will be diluted by the importance of secondary supplies that will continue to grow

13 Secondary production far more important in lead than in copper or zinc 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Data: CRU Secondary and primary production as % of total, world % Primary Secondary 17% 10% Lead Copper Zinc

14 Secondary lead industry trends and issues Further steady growth in lead demand to ensure further steady growth in scrap supplies Alongside high recycling rates and sufficient smelter capacity, secondary lead production to remain the main driver of global supply growth Main issue in secondary lead industry remains one of the ongoing fight for scrap share US lead recycling dominated by main lead-acid battery makers, through own smelters or tolling New entrant Aqua ramping up new technology Reno facility - need to show can recycle at lower costs and emissions than existing conventional secondary smelters Resolution to entrenched problem of excess lead recycling capacity in Europe remains elusive. EC scrap fines for 3 lead recyclers - Eco-Bat, Campine and Recylex Environmental clampdown and more organised scrap collection in China re-directing more scrap away from informal small-scale operators towards more modern, cleaner and larger-size lead recyclers Still too many smelters chasing the scrap pool available around the world inevitably leads to higher scrap prices and higher scrap flows, both within regions and between regions

15 Global secondary production typically bigger growth in contrast to more erratic global primary picture 8,000 7,000 6,000 5,000 4,000 3,000 2, Data: CRU Refined lead production, world ( 000 tonnes) Year-on-year change - secondary (RHS) Year-on-year change - primary (RHS) Total - primary (LHS) Total - secondary (LHS) year-on-year change ( 000t lead)

16 Steadier normal global lead output growth in 2010s compared to earlier Chinese-boom fuelled years 14,000 Refined lead production, world ( 000 tonnes) % year-on-year change , ,000 11, , % per year ( ) 6.0 9, ,000 7, , , ,000 3, , Data: CRU

17 What s the supply/demand balance picture?

18 Pulling demand and supply together, lead surplus shrinks before moving into deficit 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 Data: CRU Refined lead consumption/production, world ( 000t) Refined lead balance, world ( 000t) Balance (RHS) Production Consumption

19 World outside China joining already tighter lead market inside China this year, most of early 2010s surplus ex-china Refined lead market balance ( 000 tonnes) Balance outside China Balance inside China Data: CRU

20 Smaller stock iceberg already melting? 200 Refined lead stocks, world year-on-year change ( 000 tonnes, year-end) Reported Implied unreported* * Derived from difference between change in reported stocks and market balance Q2017 Data: CRU, ILZSG, LME, SHFE

21 What path lies ahead for lead prices?

22 Tick up in lead prices, but longer-term trend still down from 2007 peak 3,000 LME 3-month price, nominal/real terms, annual average ($/tonne lead) 2,500 2,000 1,500 LME 3-months price $ (real terms) $1,800/t $2,000/t 1,000 $500/t - old 1900s long-term floor 500 LME 3-months price - $ of the day (nominal terms) Data: LME, CRU

23 The only way is up... Still room for reasonably robust lead demand growth, helped by LAB usage in stop-start vehicles Worst over for adjustment in China - orderly transition to slower growth path Tighter raw material feed (concentrates joining scrap) restraining smelter production - future primary growth path less certain than secondary growth path. Mine project pipeline zinc-rich and lead-poor Switch into deficit - scope for error could see bigger shortfalls drawing down from smaller stockpiles Not just size of lead stock iceberg - composition ( use-ability ) and rate of drip feed to the market will be key in determining lead price path ahead More favourable external drivers - more bullish outlook for other metals, notably zinc; US dollar rally running out of steam. Lead swept higher by wider rally in zinc and other metal prices LME lead price already taken a step up into low $2,000s from high $1,000s - greater volatility as market tries to work out real v fake improvements in underlying lead market dynamics November 2016 high in $2,500s provides first upside target - next is 2011 high of around $2,850/t record of nearly $4,000/t still seems out of reach

24 ...or is it? More political and geopolitical events could blow metals off course 2017 European elections, Brexit process, less conventional Trump administration, more assertive Russia, Middle East war/tensions, maverick North Korea, more surprises (unknown unknowns)... US and Chinese spending sprees disappoint - slower world economic growth and slower metals demand growth Underestimating rising threat to LAB dominance from alternative battery chemistries, notably LIBs on vehicle electrification path. Chinese government moves faster down this path Higher metal prices (lower TCs) triggers swifter/greater polymetallic mine response than expected January 2017 removal of Chinese 10% export tax had been successful tool in slowing Chinese lead exports to a trickle - could they lift again? Less tight lead market (weaker demand/better supplies) and renewed investor caution could see LME lead price struggle to sustain further steps higher Even struggle to hold recent gains back up into low $2,000s - instead falls back into previous high $1,000s trading - next downside targets late 2015 lows in $1,500s then late 2008/early 2009 lows (dip below $1,000/t)

25 Time for reflection and any questions... Neil Hawkes Lead market analyst (CRU) T E neil.hawkes@crugroup.com W BCI Convention, Hyatt Regency, Jacksonville, Florida, USA (2 nd May 2017)