(The views and opinions expressed herein are the views and opinions of the author, Andy Home, an columnist for Reuters.)
China exported 15,545 tonnes of refined lead in September, the highest monthly tally since 2007. The country has turned a significant net exporter for the first time since 2018.
This export surge was widely expected. China has been sitting on historically high stocks of lead, while supply in the rest of the world has been super-tight.
The London Metal Exchange (LME) lead contract has experienced extreme time-spread turbulence, the cash premium flexing out to $218.50 per tonne at one stage in August, the widest it’s been since 1990.
[Click here for an interactive chart of lead prices]
An arbitrage-driven flow of metal from an over-supplied China is the obvious solution to rebalancing the currently polarized global market.
However, relative to the amount of lead in China, export volumes are less than might have been expected and certainly so far insufficient to refill a depleted supply chain everywhere else.
China exported a cumulative 20,000 tonnes of lead over August and September after a period of minimal trade activity in either direction.
Most of that tonnage headed to Taiwan (11,262 tonnes), South Korea (5,718 tonnes), Vietnam (1,987 tonnes) and Thailand (719 tonnes).
The first two destinations are home to LME warehouses and it’s worth noting that the South Korean port of Busan and the Taiwanese port of Kaohsiung registered inflows of lead – 6,425 and 2,925 tonnes respectively – during the October prompt date delivery window.
With no LME warehouses in either Vietnam or Thailand, it’s clear that some of the exports were absorbed by the physical supply chain in Asia.
However, other parts of the global supply chain are still hungry.
Physical buyers in the Midwest of the United States are paying historically high premiums of between 15 and 19 cents per lb (US$330-420 per tonne) over the LME cash price to get metal. Assuming they can find any. Fastmarkets, which assesses the premiums, notes that the defining characteristic of the local market is a lack of spot lead.
LME stocks got a fillip from the October warrantings in South Korea and Taiwan but inflow has since slowed to a trickle and at 53,900 tonnes the headline figure is sliding back towards last month’s multi-year low of 48,175 tonnes as metal leaves European locations.
LME time-spreads have calmed since the August wildness but the cash premium is still there, valued at $19 at Tuesday’s close.
None of which suggests that China’s export flows have yet accelerated to the point that they’re making a tangible impact on the global market.
Nor do local stock levels. Lead inventory registered with the Shanghai Futures Exchange (ShFE) has fallen by 39,125 tonnes from its mid-September record high of 205,898 tonnes. But stocks of 166,773 tonnes are still three times the size of those in the LME’s global warehouse system.
The main barrier to a faster rebalancing of Chinese surplus with the rest of the world’s deficit remains the sea-borne container market, where prices are still elevated and ports log-jammed, not least U.S. ones.
That’s both restraining export volumes and preventing what is leaving from reaching the regions that most need more lead.
Both LME and physical markets seem set to remain tight for a while yet.
The eventual return of the Stolberg smelter in Germany after flood damage will help European buyers, but the global lead landscape is looking much more finely balanced than previously assumed.
The International Lead and Zinc Group (ILZSG) made some big revisions to its forecasts at its October meeting. Back in April it had expected global lead supply surpluses of 172,000 tonnes and 96,000 tonnes this year and next. The latest forecast is for a much more modest surplus of 27,000 and 24,000 tonnes respectively.
This year’s demand growth was revised sharply higher from 3.9% to 5.5%, attesting to the strength of recovery in the automotive sector, which is the lead market’s biggest customer in the form of lead-acid batteries.
Apparent demand in the United States is expected to bounce back by 9.6% this year, surpassing 2019 levels, according to the ILZSG.
This helps explain the physical lead supply crunch outside of China. It also suggests there is much less slack in the lead market than thought, meaning China’s stocks remain the only short-term relief for everyone else. The only problem is that most of them are still in China.
(Editing by Mark Potter)