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Wednesday, November 29, 2023

Lead Outlook 2022: Demand to Recover, Prices Likely to Remain High

Click here to read the previous lead outlook article.

Following the rebound from the lows hit in 2020, lead prices continued their upward trend in 2021.

Although volatility was high, prices reached their highest level in more than three years.

As the new year begins, the Investing News Network (INN) is looking back at the main trends in the lead space in 2021 and what’s ahead for prices, supply and demand in the new year. Read on to learn what analysts and market participants had to say.

Lead trends 2021: Price performance review

Lead prices kicked off 2021 on a bright note after recovering from the uncertainty brought by COVID-19 in 2020, but volatility reigned in the lead space for most of the year.

Speaking with INN about how lead performed in 2021, CPM Group’s Carlos Sanchez said lead was the weakest performer of all base metals.

“One would have expected, given the performance of all other base metals, and really most commodities, for lead to have performed better,” he said.

Lead prices started 2021 hovering around the US$2,000 per tonne mark and traded higher for most of the first quarter. Prices started to fall by the end of February, hitting their lowest point of the year by the end of March.

“Lead prices dropped, likely weighed on by higher US yields and still-downbeat demand for automotives,” FocusEconomics analysts said back in Q1.

After plummeting by the end of the first quarter, prices took a turn to the upside, as demand from top consumer China was firm.

“Moreover, healthier automotive production data in key manufacturing countries in March, particularly in China, Germany and the US, pointed to stronger demand for lead-acid batteries, thereby pushing lead prices further up,” FocusEconomics analysts said. “However, lower lead scrap prices in the US market amid ample supply seemingly capped the increase somewhat.”

The third quarter saw prices pull back again, although they continued to trade above the US$2,000 level.

“Ongoing energy shortages in China, which have resulted in production curbs, weighed on lead-acid battery output, with plants markedly reducing output from 23 September,” FocusEconomics analysts said. “On top of this, downbeat car manufacturing amid semiconductor shortages, as well as surging prices for silicon — essential for alloying purposes — likely exerted additional downward pressure on prices.”

The fourth quarter saw some recovery for the lead price, which saw a Q4 high of US$2,469 on October 25 before ending the year sitting around the US$2,300 level.

Lead outlook 2022: What’s ahead for supply, demand and prices

As the new year begins, investors interested in the lead market should keep an eye on supply and demand dynamics as well as catalysts that could impact the sector and, of course, prices.

In terms of demand, the pandemic hit demand for lead, as its main use is in batteries, and the auto sector has experienced many hurdles in the past year, including a chip shortage.

In 2022, CPM is expecting the market to recover, assuming the world can get past COVID-19.

“Expect a recovery in lead to happen more in the second half of 2022,” Sanchez said.

Looking at how supply has performed, global lead mine production rose by 4.6 percent over the first 10 months of 2021 compared to the same period in 2020, according to the International Lead and Zinc Study Group. This was mainly due to increases in Bolivia, China, India, Mexico and Peru that more than balanced a significant reduction in Poland.

Additionally, world refined lead metal supply exceeded demand by 15,000 tonnes during the first 10 months of 2021, with total reported stock levels increasing by 31,000 tonnes.

Following the sharp contraction seen as a result of the global COVID-19 pandemic in 2020, global lead mine production is expected to rebound strongly during the 2021 to 2023 period, according to Fitch Solutions.

“Output will be boosted by increased investment into copper, zinc and silver mines that produce lead as a by-product,” the firm says. “Lead mine production will grow most rapidly in Peru and Australia, while output growth will slow in dominant producer China due to tightening safety and environmental regulations in the country.”

But even with output increasing, CPM is expecting the lead market to be tight in 2022, although a surplus is still expected.

“But that surplus is expected to be reduced in 2022 and likely be reduced further beyond this year,” Sanchez said.

Looking over to prices, CPM is expecting lead prices to pick up in 2022, in particular in the first few months of the year — a seasonally strong period for demand.

“Prices do retreat a little bit in the summer months because there’s reduced demand for lead batteries,” Sanchez said. “But then, if we can get past this COVID virus and the shortage in chips for autos no longer becomes an issue, I think you’re gonna see lead prices move sharply higher.”

CPM Group forecast lead prices will average US$2,600 for the year. Meanwhile, panelists recently polled by FocusEconomics see prices averaging US$2,057 in Q4 2022 and US$2,025 in Q4 2023.

“Although prices for lead are seen falling further ahead, positive fundamentals amid a gradually normalizing automotive sector should limit the decline next year and in 2023,” FocusEconomics analysts said. “The gradual phasing-out of lead-acid batteries, amid the global legislative push for green technologies, poses a key downside risk, while pandemic-related uncertainty casts a shadow over the outlook.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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