LONDON, Oct 10 (Reuters) – The lead market has revived after a raid on already weak London Metal Exchange (LME) shares.

The LME three-month lead price jumped 12% over the past week, hitting a near two-month high of $2,093.50 a tonne. Time spreads are the tightest they have been this year, with the cash premium on the three-month metal widening to $45.50 a tonne.

The trigger for all this excitement was the cancellation of 17,125 tonnes of LME inventory in apparent preparation for a physical loadout.

This left stocks on hand in the LME warehouse network at just 10,900 tons, the lowest of this century and the equivalent of a few hours of global consumption.

The stock grab seemed to catch a market that was content to short lead and buy zinc in a long-running relative value trade between the sister metals.

Zinc smelter closures in Europe have been in the headlines recently, but lead supplies have also suffered from a growing number of supply problems.


Lead refiners are less exposed to Europe’s continuing energy crisis than zinc smelters.

Macquarie Bank estimates that refining lead uses around 800 kilowatt hours per tonne of metal, compared to 4,750 for zinc. (“Commodities Compendium”, September 29, 2022).

However, persistently high gas prices in Europe are starting to take their toll.

Ecobat Technologies, the world’s largest lead recycler, suspended production at its Paderno and Marcianise plants in Italy this month, cutting 80,000 tonnes of annual supply.

The move reflects “extreme energy prices and other excessively burdensome costs in Italy, which show no signs of improving,” the company said.

Glencore is reviewing the sustainability of its core operations at the Portovesme site, also in Italy, in light of continued margin compression. The sister zinc plant was mothballed late last year.

Germany’s Stolberg foundry, meanwhile, remains out of service after being flooded last summer. Repairs have been completed but commodities group Trafigura is still awaiting regulatory approval for its purchase of the plant to restart operations.

Stolberg’s extended shutdown has cost the European market around 155,000 tonnes of lead since it closed a year ago.

The supply chain crunch was further aggravated by the ban on imports of Russian metal imposed by the European Union in April. The country exported 127,000 tonnes of refined lead last year with significant flows to Germany and Turkey.


Lead supply problems are not limited to Europe.

Trafigura’s metallurgical arm, Nyrstar, also operates the Port Pirie lead smelter in Australia, which is set to close for a 55-day maintenance overhaul.

Chinese lead producers don’t seem to fare any better. Exploitation rates for secondary recyclers have averaged just 41% so far this year, down from 55% in 2022, according to Macquarie Bank, citing a combination of reduced scrap supplies and constraints energy.

Global refined lead production fell 2.2% in the first seven months of this year, according to the latest monthly assessment from the International Lead and Zinc Study Group.

Utilization also fell by almost 1%, meaning the global market was still in a marginal supply surplus of 25,000 tonnes from January to July, but is well below the production surplus of 116 000 tons from the previous year.


Physical buyers outside of China may struggle to find this surplus.

The US market has been extremely tight since the unexpected closure of the Florence recycling plant in South Carolina last year.

Midwest physical premiums for high-purity lead rose from 11.75 to a record 20.5 cents per pound in 2021. They have risen further since, with Fastmarkets pricing the midpoint at 22.25 cents per pound, or $491 per ton above the LME spot price.

Indeed, the physical compression of the metal in the US market has been so extreme that it is receiving significant tonnages from China for the first time since 2006.

China exported 36,000 tons to the United States last year and another 30,000 tons in June this year.

That, combined with stubbornly high physical bounties, suggests there is still little slack in the North American supply chain.


China has also exported refined lead to Taiwan, which is the only LME site to have recorded arrivals in recent months.

The pipeline, however, appears to be running out since Chinese exports slowed to just 1,120 tonnes in August, most of it destined for Thailand, where there are no LME warehouses.

It is far from clear how there is going to be a replenishment of LME warehouse inventories, given reduced flows from China and mounting smelter problems outside of China.

Lead exhibits the same muddled dynamic as twin metal zinc, a clouding macro picture weighing on price even as the physical supply chain and LME market remain tight.

There is, however, an essential difference between the two metals. Zinc demand is expected to fall in the coming months as European manufacturing plunges into recession and US growth slows sharply.

The main end-use market for lead, on the other hand, is for vehicle batteries and 78% of this demand comes from replacement batteries.

This makes the lead partially recession resistant. Batteries will fail in good and bad times and when they fail, not getting a new one is not an option.

The recession may improve availability, but not to the same extent as other metals, suggesting that the LME lead market may have to learn to live with extremely low inventories for some time to come.

The opinions expressed here are those of the author, columnist for Reuters

(Editing by David Evans)