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The Current Price and Future Value of Lead:
A Presentation on the Upward Trend of Lead in the Asian Futures and Commodities Markets over the Past Decade
By: Bryan Baxter Tippet
Ђ Introduction ђ
This presentation is dedicated to determining the actual price of lead in the
current world market, which is ripe with demand for lead. United States citizens might
not realize it due to all of lead’s negative publicity but lead is an internationally desired
commodity. This is determined by its utility. Primarily, lead is valued for its use as a
superior material in car batteries. The current spot (cash) price of lead is $975 a ton.
For obvious reasons lead is not traded on the U.S. commodities exchanges. However it
is traded on nearly all Asian futures markets and on the London Metal Exchange, with
particularly high activity in China and India. Lead, as a commodity, is traded primarily
in soft and animated forms, as an alloy or in copper-based lead scrap.
In countries such as India and China, who have enjoyed tremendous economic
growth over the past decades, many citizens are beginning to purchase automobiles on
a wider scale, fueling demand for lead because of its use in car battery production.
India does not have any major lead ore deposits and imports around 50% of its
requirements, fueling a demand for a pricing standard on particular denominations of
lead, for exchanging lead between borders require a standard price since it would be
very hard to haggle over the price of something such as lead. The futures markets
trading lead provide the world with a standard price for trading lead.
Ђ Mining Activity and the Rise in ETF Prices ђ
There have been recent reports that show that base metal mines are boosting
ETF prices. Exchange Traded Funds are a composition of securities belonging to a
particular country and ETFs act as a vehicle to invest in a certain country. Many
investment analysts are now saying that strengths in base metal markets are boosting ETF
prices for countries located in continents that mine base metals such as Asia, South
America and Australia with their infamous Rio Tinto mines.
Brazilian ETF Price Chart
In the United States lead has been cast out as an
environmental and safety hazard since it was found to be
harmful. However, even though the U.S. may try to sweep
lead under the rug there are still a great number of industrial
purposes that lead serves, the most important being the use
in car batteries. The use of lead in car batteries has increased
rapidly, forcing demand to overreach supply. “In fact,
according to the International Lead and Zinc Study Group,
2008 is expected to be the fifth consecutive year in which
there is a supply imbalance in the lead trade. The ILZSG
forecasts a shortage of 50,000 tons” (Wright, 2007). Because
of the simple economics behind that statement the price of
lead in markets where it has traded has risen dramatically.
The Future of Lead Futures: Questions that
will determine future prices
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Australian ETF Chart
How much of china’s future lead consumption will come from domestic
mining versus foreign imports?
Is the lead market headed for saturation and surplus? If so will demand
lessen or will china and India continue to fuel demand by themselves?
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How viable and profitable is modern lead mining?
Are there major differences between primary versus secondary lead?
What and how big of a role will recycled lead play in the price of lead?
Similarly what will be the future role of scrap metal sources in lead
consumption?
What effects will increasing environmental awareness have on lead-acid
battery recycling opportunities, especially due to recent regulations on
collection and eco-friendly lead-acid battery recycling?
Declining Prices of Lead
Because lead has been increasing in value many mining
companies have been created or have went back into
business. However, as supply has started to reach demand
prices have begun to fall. Blue Note Mining Inc. recently
close a lot of its Zinc and Lead operation because even
thought they were running mines efficiently the drop is
base metal prices has rendered their business
unprofitable. The moment there became a balance
between supply and demand for lead, around 2007,
prices began to stabilize and then decrease. Because of
the desire to reap mining profits from base metals mining
companies have driven down the price of lead.
Graphical Rise of a Pound of Lead in Response to
Changes in Demand
Conclusion
Declining Lead Prices
To conclude this paper is not simply about trying to
make money on Asian Lead Futures rising. The
commodities markets are in existence because they set
prices for commodities so that they can be traded at a
regulated, standard price. India needs lead to be on the
futures market because they import so much lead. Think
about how much time and money would be wasted
between Indian importers and foreign exporters in
deciding the value of lead and drawing up the contracts?
Because there is a standard trading price for lead there
can be efficient, fair exchange between countries.
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Ђ Lead’s Natural Value Ђ
What are the historically and naturally valuable qualities of lead? Lead
can be described as being a very supple and non-corrosive metal that has been
used for thousands of years. Its historic uses are wide and varying. In modern
time it was the advent of the machine age that helped employ the use of lead in
things such as bearing metals, cable insulators, caulk and solder, and also type
metal. A lot of these lead technologies have since become archaic, however
lead’s use in car batteries continues to this day.
Specifically, the starting-lighting-ignition lead-acid batteries have
continued to employ lead because of its malleability in making very exact
internal matrices for batteries. It is also prized for its improvements to SLI
reliability and also for its anti-corrosive qualities so highly prized in batteries.
The net demand for leaded batteries represents 88% of the U.S. consumption
in lead. Other uses include ammunition, glass, and casting metals.
Ђ Reasons for Increased Demand Ђ
Where is all of this demand coming from? In 2007 global demand for lead
rose approximately 4%. However this increase was primarily fueled by the dramatic
rise in lead consumption in china of 12%. The explanation for this dramatic
increase in Chinese lead consumption can be attributed to the growth of their
automobile production and consumption. Currently China is the second largest
market for car sales. In 2007 Chinese auto output grew 15%. Furthermore, experts
predict a sustained growth of 15% through the decade. China is poised to become
the world leader in automobile production and consumption. A lot of lead-acid
batteries will be required to fuel this expansion.
The specific reason for the surge in Chinese car sales is the amazing increase
in personal car ownership because of more disposable income per citizen. It is only
recently that the average Chinese citizen was both allowed to own a car and have
been able to afford a car. Up until now the only cars you would have found on a
Chinese road would have belonged to the government. A recent report out of
Beijing reports that sedan car ownership in china grew by 33.5% last year to 11.5
million. Currently only 2% of Chinese citizens own a car. This number is expected
to rise, fueling demand for more lead-acid batteries which should lead to positive
gains by lead as a commodity.
Sources:
"Asia : Scrap Lead Prices." Spot Market Pricing. 11 Dec. 2008. RecycleNet. 9 Dec. 2008
<http://www.scrapindex.com/metal/asia/lead/index.html>.
Dyson, Tom. "Still Available: Double-Digit Yields in Australia." 7 June 2007. Daily
Wealth. 9 Dec. 2008
<http://www.dailywealth.com/archive/2007/jun/2007_jun_07.asp>.
Kedrosky, Paul. "Brazil Powers Ahead." ETFs. 12 Mar. 2008. Infectious Greed. 9 Dec.
2008 <http://paul.kedrosky.com/archives/2008/03/12/brazil_powers_a.html>.
London Metal Exchange - 5 year lead spot price. Raw data. 10 Dec. 2008.
Metal Bulletin, Asian Lead and Zinc Conference, 30 Oct. 2008, Pudong Shangri-La
Hotel. MetalBulletin Events.
<metalbulletinstore.com/images/lead/asian_lead_zinc_conference.pdf>.
Wright, Scott. "Lead Bull Market." Zeal LLC 29 June 2007.