Lead outlook grey for 2015

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LeadIn 2015, lead prices will be governed by weak demand and adequate production

By Shweta Sengar

With the cooling of international lead prices in a relatively short period of time, battery prices are falling at a significant rate. Multi commodity exchange (MCX) futures prices are fluctuating the same way as international exchange rates do. From about ` 130-140 a kilogram in mid-2014, domestic lead prices have come down to around ` 110 a kilogram currently.

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Why prices fell
Lower than expected demand in 2014 is the primary reason for the fall in lead prices. According to a study by International Lead and Zinc Study Group (ILZSG), in 2014, global use of refined lead was expected to increase by 4.4 per cent to 11.73 million tonnes over 2013.
Yet, real demand remained poor, growing only by 1.4 per cent to 11.28 million tonnes. The lower consumption in China, which accounts for 40-50 per cent of global lead usage, shrank demand.

A boost for battery makers
Battery manufacturers in India can now earn higher profits with the fall in lead prices.
While lead is used in many other applications such as cable sheathing, making ammunition, pigments, etc, around 80 per cent of it is used in batteries—in lead acid batteries used for automotive as well as industrial applications, UPS systems and inverters used in homes, in the IT industry, for telecom towers and in transportation.

A favourable outlook
Experts suggest that lead prices might continue to trade at current prices, given the expectation of subdued demand from top consumers.
In spite of further expansion in automotive production and growth in the telecom industry, lead demand is expected to be a repeat of what was witnessed in 2014. However, international production is expected to grow to 11.54 million tonnes in 2015, says the ILZSG report. Demand and supply in the lead market will remain at par. The report further says that excess inventory of 0.58 million tonnes at the end of 2014 is also available and this could result in a satisfactory surplus in 2015. Therefore, material costs for the battery industry will continue to remain low in India this year.

LEAD OUTLOOK
International lead prices (Source: The Hindu Business Line)

A different opinion
Yet, many battery manufacturers consider fluctuating lead prices to have a negative effect on the battery industry. According to Kapil Sood, Fusion Power Systems, “Volatility in the commodity market is badly affecting the battery industry. Commodities are now traded like shares in the stock market and involve a lot of speculation. This market is being controlled more by speculators than true market demand and supply. Due to this reason, the cost of production cannot be controlled, whereas, the selling price remains constant most of the time since it is strenuous to make frequent changes to it. Small manufacturers are more affected by fluctuations because of limited resources. The value of lead stock being held as well as inventory of already produced batteries suddenly gets eroded once the lead price falls. This is a big loss for any manufacturer.”
Only with time will it become clear whether the gradual fall in lead prices has positively affected the battery manufacturers or whether it has had some negative effects.

Factors affecting the Indian lead market

  • Lead prices in India are based on the rates in the international spot market, and the Indian rupee and US dollar exchange rates
  • Economic factors such as national industrial growth, the ongoing global financial crisis, recession and inflation affect the metal’s prices
  • Commodity-specific events such as the construction of new production facilities or processes, new uses or the discontinuance of historical uses, unexpected mine or plant closures, or industry restructuring, all affect metal prices
  • Trade policies set by the government affect lead supply as they regulate material flow
  • As societies develop, their demand for metal increases based on their current economic position, which could also be referred to as the ‘National Economic Growth Factor’
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