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New Lead Smelters Needed To Ease Tight Supply

Discussion in 'Uncategorized Threads' started by Joe Potosky, Mar 13, 2008.

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  1. Joe Potosky

    Joe Potosky Well-Known Member

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    New Lead Smelters Needed Ex-China To Ease Tight Supply

    LONDON, Mar 12, 2008 (Dow Jones Commodities News via Comtex) --
    By Melanie Burton Of DOW JONES NEWSWIRES

    More refined lead processing capacity outside China is essential to prevent a squeeze in global supply to the Western world.

    Without it, the price of the metal used in batteries for cars and electric bicycles could power to fresh record highs and force some battery makers out of business, analysts and participants said at a recent industry forum.
    Rising demand in China, home to most of the world's lead production, along with the onset of a new tax regime there, is set to clip refined lead available for export.

    For years, metals producers overlooked lead as low prices pushed it to byproduct status, with miners instead focussing on sister metal zinc as the more profitable option. The two are often found in the same ore deposits.
    But lead prices have now eclipsed those of zinc, thanks to the tight concentrate market spawned by under investment. This could change the face of the industry, participants at Metal Bulletin's annual lead conference in London said.

    Focus Consulting Director Geoffrey May said that sky-high lead prices are contributing to poor profitability at battery makers who are having difficulty in passing lead costs through to the battery replacement market.

    Based on costing studies, he said lead comprises 73% of the cost of a battery when prices are at $2,000/ton and 81% of costs at $3,000/ton. Taking battery sector consumption at 6.64 million tons - around 80% of the total - and a lead price range of between $1,800-$2,000 ton, lead consumed by the industry costs between $12 billion and $13.3 billion globally a year, or more than 70% of industry turnover, May told Dow Jones Newswires.

    But even more than a drop in prices "the battery industry needs a period of lead price stability," said May.

    Lead for immediate delivery on the London Metal Exchange closed at $3,030/ton Tuesday, up over $1000 from year-ago levels. While LME lead prices are expected to remain above historic levels - and higher than zinc for the next few years as Chinese demand soaks up any excess supply - changes to that country's tax regulations will crimp exports of refined lead.

    Because of rising domestic demand, the end of a value added tax rebate in September 2006 and a new 10% import tax, China's net exports of refined lead were expected to have fallen 35% in 2007 and remain at a similar level in 2008, says the International Lead and Zinc Study Group.

    China is by far the largest producer of refined lead, accounting for some 35% of world output in 2007, from 12% in 1997. The country also accounts for around one-third of total lead demand, up from 8% a decade ago, with consumption seen by ILZSG growing by more than 10% this year.

    As with many commodities, the China boom has ensured rampant demand for lead as its growing population urbanizes and spends on transport such as electric bicycles.

    Although an increase in mine output will help narrow the gap between supply and demand in 2008, ILZSG sees the market remaining "close to balance and vulnerable to any unforeseen supply disruptions."

    The study group said principal rises in production will be in China and Bolivia, where Apex Silver's new San Cristobal mine was recently commissioned. "Higher output is also anticipated in Europe mainly due to increases in Macedonia, Portugal, the Russian Federation and Sweden," said the group.

    The global output of refined lead is seen jumping by 5.4% to 8.67 million tons in 2008, or roughly equal to demand, said ILZSG.

    Over the past two years, changes in Chinese tax legislation has also helped spur a global shortage of lead, fueling a rapid escalation in London Metal Exchange price over 2007, with further gains expected, said analysts.

    New changes seen to China's tax code as it clamps down on energy intensive industries suggests that prices outside the country will have to be significantly higher to draw refined metal out.

    The impact of changes to Chinese export policy on lead exports could be hugely significant, said consultant Jimmy Ding of CBI China at the conference.
    A resources tax instituted on lead mines increased by around 400% in 2007, though now accounts for only 1% of the lead price. "The Chinese government is working on some new measures....the target is to correlate tax to the metal prices; this is interpreted by many in the market that the resource tax might be raised to 3-4% of the total price," he said. Ding said a timeframe for the changes wasn't yet clear.

    Outside China, high prices could stimulate more concentrate production but without an increase in global smelting capacity analysts say there's no guarantee enough refined lead will make it to Western markets, especially if the Chinese tax code change comes into force. Without China's participation there will continue to be an acute shortfall in refined lead supplies elsewhere and a build of concentrate stocks, analyst Huw Roberts of CHR Metals said at the conference.

    Chinese producers, burned by sky-high prices of lead concentrate this year have invested in lead exploration and production with a view to becoming self-sufficient.

    China imported 107,479 tons of lead concentrate in January according to the most recent Chinese customs data, down 12.1% on year-ago figures. The country imported 5,727 tons of unwrought lead, up 23.1% on the year, with exports of unwrought lead 11,0006 tons. As a result, smelters will no longer need to import concentrate. "Lead smelter capacity ex-China is not sufficient to treat all lead concentrates produced ex-China," said Roberts.

    Roberts said that new lead smelter projects outside China are planned but can't be commissioned until 2009 at the earliest due to difficulties sourcing equipment and skilled labor on top of credit market tightness. It may be 2010-2011 before sufficient capacity is online, he said.

    In addition to high prices, as China consumes excess battery production, loss of battery exports from China would add to pressures on markets outside China, Roberts said.
     
  2. nipper

    nipper TS Member

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    The writing is on the wall for the home based shot maker who wants to make money supplying shooters lead.

    Bill
     
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