The Technical Pattern of Lead is Changing, Turning to Bullish?

The three-year bear market for industrial metals seems to be ending. Every base metal hit its price target this year, with the exceptions of copper and tin, which still need to prove themselves. Historically industrial metals tend to move in tandem since they have many drivers in common. This makes us wonder: will lead follow?

The lead market seems to be in deficit. As my colleague Stuart Burns pointed out last month:

“The lead market was in deficit by 41,000 tons in January to April 2014, according to the World Bureau of Metal Statistics, following from a deficit of 276,000 tons recorded in all of 2013. Total stocks at the end of April were 35,000 tons lower than at the end of 2013 even though LME inventory is roughly at the same level as the start of the year after a sharp uptick in inflows at the end of last month”

That deficit hasn’t been translated into significantly higher prices yet, however the picture is changing.

3M LME Lead price since 2013

The technical patter is bullish. Lead is about to break resistance levels and, if it does, we would expect it to make multiyear highs in the near term. Interestingly, we already warned of a similar behavior in zinc during June and, right after our call, it surged 12% in only two months.

What This Means For Metal Buyers

The technical picture is turning bullish, with a market in deficit and the base metal sector trending higher, it seems like a great time to hedge your lead purchases as soon as lead hits new ground.

Lead up on supply concerns

Increase in demand and widening deficit to support price rise

Lead prices on the LME have risen 9.5 per cent since March, led by a slowdown in mine production and a relatively higher demand. Lead is used largely in car batteries. About 80 per cent of the metal is used in the lead acid batteries used in vehicles.

According to data from Bloomberg, the number of lead-acid batteries in newly assembled passenger and light vehicles is projected to go up 4.8 per cent in 2014 to 86.82 million. The pick-up in the global automobile sector is a big plus for the lead market.

In the domestic market too, lead futures on MCX have been moving up. Traders who have a medium-term outlook can go long on the contract.

Demand outstrips supply

Demand for refined lead, which was up just 0.4 per cent in 2012, surged 7 per cent in 2013 to 11.22 million tonnes. This year, the International Lead and Zinc Study Group (ILZSG) forecasts demand to increase over 4 per cent to 11.73 million tonnes.

China, the world’s largest consumer of lead, is expected to show a large appetite for the metal. Though the country’s lead consumption in the first four months of this year (January-April) is down 10 per cent, ILZSG forecasts it to rise 7.4 per cent for the full year.

Supply, however, is going to be tight. The global output of lead from mines is expected to rise by just 5 per cent in 2014 after a 7.6 per cent increase in 2013, says the ILZSG, widening the deficit in the market.

From a 1,000-tonne shortage in 2013, deficit in lead in the first four months of this year has widened to 12,000 tonnes. The ILZSG estimates the shortage to widen to 50,000 tonnes in 2014. Increasing deficit will help lead prices crawl up.

India relies largely on imports to meet its domestic lead demand. Data from the Ministry of Commerce show that after two consecutive years of a fall in imports from 2010-11, lead imports surged 25 per cent in 2012-13 and 2 per cent in 2013-14.

A weak rupee could keep domestic lead prices higher this year with the metal’s futures price broadly tracking international prices.

Technical outlook

Medium-term view: The medium-term outlook for the MCX-lead (₹137 per kg) futures contract is bullish. The strong downtrend that was in place since August 2013 reversed last month.

Also, as this reversal has happened after forming a double bottom pattern between March and June this year, the chart looks very bullish now. The neckline support of this pattern is at ₹130.

The bullish outlook will remain intact as long as the contract trades above this level. Intermediate dips to this support level may attract fresh buying interest.

So traders with a medium-term perspective can go long on the contract at current levels. More long positions can be accumulated at ₹135 and ₹132 if an intermediate pullback is seen. Stop-loss can be kept at ₹127 for a target of ₹150.

The medium-term outlook will turn bearish only if the contract falls decisively below ₹120. The ensuing target on such a break will be ₹115.

Short-term view: MCX lead is in a strong uptrend in the short-term perspective as well.

The contract has consolidated in the form of a triangle in the last week of July and has witnessed a bullish breakout last week.

Immediate support for the contract is at ₹136. The 21-day moving average at ₹134 is a key short-term support for the contract. Above this level, a rally to ₹145 looks likely in the short term.

The outlook will turn negative only if the contract records a strong close below the 21-day moving average level.

The targets on such a break will be ₹130.

hindubusinessline

Zinc, Lead buoyed as value hunters tune into global growth story

* Zinc correction looms; upside potential intact near term-Triland

* LME may quickly implement new warehousing rules, if appeal won-sources

* Coming Up: U.S. Consumer confidence for July at 1400 GMT

Zinc prices matched three-year highs hit the session before on Tuesday and lead inched to a new 17-month top as investors ploughed into metals that have lagged this year and appear undervalued on prospects of reviving global growth.

Manufacturing growth in the world's top metals user China expanded at its fastest clip in 18 months in July, an initial survey showed, while in general the U.S. economy has gathered pace, with a brightening picture seen in its labour market.

This week, second quarter growth in the United States, a jobless report, and an official reading of China's factory health are expected to show fresh signs that a global economic revival has taken hold.

"The macro environment is improving, putting base metals on a solid footing going into the second half, but it's not enough to tighten up the complex as a whole so the market is focusing on those with supply side issues. Clearly zinc and lead are some with the biggest," said ANZ strategist Daniel Hynes in Sydney.

Zinc supply in particular would suffer with several top mines drying up, including Century in Australia, while a recovering construction industry would revive demand from galvanisers.

"The direction is right. It's probably gone a lot quicker than I expected which opens it up for some profit-taking (but)...I wouldn't expect to see a significant sell off," he added.

Three-month zinc on the London Metal Exchange matched Monday's three-year peak of $2,416, signalling investors' appetite for the contract that has jumped nearly nine percent in July.

"The theme from the physical trading community is that zinc has risen too far, too fast... and that the market has to correct downwards. We know that it will, the question is just how high it goes first," said broker Triland in a note.

LME lead rose to $2,305, a new top since late February 2013. Prices moved into positive territory for the year in July and are now up almost four percent for the year.

Lead on the Shanghai Futures Exchange (ShFE) climbed as much as 2 percent, adding to 5 percent gains a day earlier, before trimming gains to 1 percent at 15,320 yuan ($2,500) a tonne by 0228 GMT.

LME copper edged up 0.1 percent to $7,124.50 after small losses in the previous session.

U.S. economic growth likely rebounded in the second-quarter from a winter-induced slump at the start of the year and will probably continue to gather momentum through the rest of 2014. The reading is due on Wednesday.

Elsewhere, the London Metal Exchange (LME) is likely to move quickly to implement its tough warehousing rules to cut backlogs if it is successful at an appeal hearing this week, metals market sources said.

China's May Lead imports drop; Alloy imports hold up

China only imported 6 tons of refined lead in May, Customs data show, as lead supply in China was ample and import prices for the metal were considered high.

The import volume in the first five months of this year slumped 80.46% year-on-year to 94 tons.

Lead alloy imports, in contrast, hit 1,740 tons in May and amounted to 13,000 tons for the first five months of the year, boosted by robust demand at home.

Lead Price: Bearish Signals Mean No Need to Make Commitments

Lead remains near its lowest levels of the last year. This doesn’t come as a surprise after the bearish signals that lead gave in March and the industrial metals sector, in general, remaining weak.

“Lead prices might keep gaining support during the coming months. However, the uptrend is far from strong, and we still don’t see lead trading above $2,500 per metric ton on the LME. It might make sense to wait until prices show real strength before making long-term commitments.”

Indeed, the technical picture looks more bearish than it looked at the beginning of the year. We recommend lead buyers not to take long-term positions unless prices break above $2,250/ton. Attempting to purchase on the dips when there is no foreseen risk is not a good buying strategy.

By reading the market and understanding when a metal is likely to have upside momentum, buyers can set price targets, manage their risk exposure and reduce costs without depending on subjective opinions that try to guess which direction prices will take.

 What This Means For Metal Buyers

Lead seems incapable of reaching new highs. Buyers might not need to take long-term positions through the rest of the year. We would recommend that buyers not worry about price fluctuations unless prices break above $2,250/t.

Global Lead mine supply grew 5% over the previous year in Q1 '14: ILZSG

The International Lead and Zinc Study Group (ILZSG) has released the preliminary data for world lead supply and demand during the first quarter of 2014. The provisional data indicates that the lead mine supply has grown by almost 5% year-on-year during the initial three month period of the year.

According to ILZSG, the world demand for refined lead metal exceeded supply by 10kt during the first quarter of the year. The total reported stock levels declined by 18 kt during the same period.

The higher mine output from Australia, Mexico, Peru and the US contributed to the 5% year-on-year growth in global lead mine supply. On the other hand, the mine supply from Canada and Turkey declined during the quarter.

The global refined lead metal production declined by 1.7% during Q1 this year. This was primarily on account of lowered production from China and the US.

The global demand for refined lead metal declined by 2% during the quarter. The apparent usage of refined metal by China and the US fell by 2.5% and 6.7% respectively. However, the apparent usage in Europe and Japan rose by 1.4% and 1% respectively.

ILZSG statistics indicate that the lead mine supply during the first quarter of 2014 totalled 1,161,000 tonnes as against 1,106,000 tonnes in Q1 2013. The global refined lead metal production during Q1 ’14 totalled 2,621,000 tonnes as against 2,665,000 tonnes in Q1 2013. The apparent lead usage totalled 2,631,000 tonnes during Q1 ‘14, down from 2,686,000 tonnes in the corresponding quarter in 2013.

New Cheaper, Greener Perovskite Solar Cells To Replace Lead with Tin

Researchers have developed a new cheaper, greener Perovskite Solar cells with no lead. They put tin instead of lead Perovskite as the light harvester. The result was a new solar cell with good efficiency than the other. It could be made easily by “bench” chemistry techniques. The manufacturing process involves the use of completely viable materials and completely eliminates hazardous materials.

Inorganic chemist, Mercouri G. Kanatzidis who has a great skill in dealing with tin, said that this was an advanced step in replacing lead with tin in the very promising type solar cell known as Perovskite. He said that the metal tin is more viable than lead and it worked good to make an efficient solar cell.

As it was in a structure called Perovskite, it is called so. Instead of lead the new one has tin as the light absorbing material. Tin Perovskite has efficiency same as that of lead Perovskite or even more. Thus it can be touted as the “next big thing in photovoltaic”. The materials was developed, synthesized and analyzed by Kanatzidis. Along with the help of Robert P H Chang, Northwestern collaborator and nano scientist, he engineered the new efficient solar cell.

The two main features of the material is it can absorb most of the visible light spectrum and second one the Perovskite salt can be dissolved and it will reform upon solvent removal without heating.

Barclays maintains 2014 LME Lead price forecast at $2,239 a ton

 Barclays maintains their full year LME lead price forecast at $2,239 a ton while the metal's first-quarter prices were slightly softer than expected averaging $2,105 a ton, compared with their forecast of $2,200 a ton.

According to Barclays, the fundamental picture for lead continues to look constructive with the market in a modest deficit and reported stocks-to consumption very low.

Data from the ICSG show that the US lead market deficit continues to increase, though we believe that may be partially exaggerated by record-high imports in January. 

Barclays understands that some of those imports went to unreported stock builds, with market participants keen to hold a more comfortable inventory buffer given the lack of domestic production following the closure of the Herculaneum smelter.

Globally, demand is being supported by the build out of 4G networks, especially in China, India and, to a lesser extent, Africa. Stationary battery demand for this use is expected to be a significant contributor to global lead demand alongside solid transportation demand, especially in China and from a recovering European autos market.

The restructuring of Exide Technologies could further tighten the US market depending on what it decides to do with its smelter assets. Regardless, the risk is for significant disruption since a sale would require new owners to make the facilities environmentally compliant. Alternatively, if Exide kept its US smelters, it could use this to feed at least part of it battery operations. However, smelter upgrades would still be required, leading to closures and likely production disruptions, which could tighten US supply further.

World zinc and lead markets seen in deficit this year - ILZSG ( The International Lead and Zinc Study Group )

The global market for refined zinc is expected to be in deficit by 117,000 tonnes this year and refined lead in deficit by 49,000 tonnes, the International Lead and Zinc Study Group (ILZSG) said on Thursday.

Zinc demand is expected to rise 4.5 percent to 13.58 million tonnes this year while refined supply increases 4.4 percent to 13.46 million tonnes, the group said in a statement following its spring meetings.

"Having remained relatively stable for the past four years, Chinese production of refined zinc metal is expected to rise by 7.3 percent in 2014 and this is the main factor behind an anticipated overall increase in global production," it said.

In lead, demand is expected to rise 4.4 percent to 11.73 million tonnes and refined supply to by 4.3 percent to 11.68 million tonnes.

Lead shines as supply tightens

Lead is one base metal with a distinctly bullish outlook going by market fundamentals. A deficit is forecast for 2014 and 2015, pushing the stocks-to-consumption ratio to its lowest level since 2010.

The projected tightness is underpinned by the US demand. The 400,000-tonne market deficit in 2013 is likely to expand to 500,000 tonnes in 2014 and continue into the following year, resulting from the closure of a primary smelter with 110,000-tonnes-a-year capacity.

Fortunately, growth in primary smelter production, outside China, is set to expand by about 100,000 tonnes, neutralising the impact of the US closure. Yet, with a projected 3-4 per cent increase in total ex-China demand, tightness appears inevitable. Then there is the question of non-reported stocks.

How large are they? According to International Lead and Zinc Study Group data, there is a 50,000-tonne off-warrant build-up in the US since 2012, which is a small buffer to the tightness projected in the region in the context of depleted LME stocks.

Supply drops

From a supply perspective, there is likely to be restraint in the growth of mine output following anticipated shutdowns of key mines around the world over 2014-15 despite potential spare capacity in China.

Lead output may be expected to grow at 3-4 per cent per annum this year and the next.

On the demand side, in countries such as China where new car sales have expanded at more than 10 per cent in recent years, demand for lead will be driven by both the continuing expansion in automobile sales as well as the steadily increasing demand for replacement batteries. It is this dynamic that supports a bullish forecast for lead demand among the BRIC (Brazil, Russia, India and China) countries, anticipating growth in demand of 6 per cent for these countries. Importantly, Chinese demand for lead benefits from rapid expansion in the use of e-bikes in China and neighbouring countries. The e-bike batteries typically have a shorter life prior to renewal, raising the volume of replacement demand. Additional demand growth is expected to arise from power storage for the rapidly expanding network of 3G and 4G telecom masts.

As for India, demand for lead acid batteries is seen rising by 10-12 per cent a year as the country embraces solar power and e-bikes. However, domestic supplies are unlikely to expand as rapidly. So, demand may be rationed.

The US demand for lead acid batteries has grown steadily over the past three years at about 2 per cent a year. Within this overall demand, original equipment demand has expanded rapidly in line with the growth in new vehicle sales while growth in demand for replacement equipment (which makes up about 90 per cent of total battery demand) has grown more slowly. Demand could rise faster with fundamental changes to both recycling and new battery technology.

Price outlook

Despite deficit in the global lead market, prices have failed to make marked gains. In part, this can be attributed to the general weakness in the base metals complex. China could possibly raise its domestic output more rapidly, which can temper the bullish outlook. As for price outlook, in H1 this year, lead could average $2,200/t, rising to $2,300/t in H2.

Lead and Zinc Statistics

Zinc and lead are the two most widely used non-ferrous metals after aluminium and copper and are vital materials in everyday life.

The latest ILZSG monthly data is listed below. Detailed information on lead and zinc supply, demand, trade, stocks and prices is available in the Group's 68 page monthly 'Lead and Zinc Statistical Bulletin'. For further information please select 'Publications' from the main menu. 

  

World Refined Lead Supply and Usage 2008 - 2013
000 tonnes	2008	2009	2010	2011	2012	2012	2013	2013
						Jan-Oct		Jul	Aug	Sep	Oct
Mine Production	3812	3810	4161	4636	4994	4153	4307	436.6	448.8	478.1	453.9
Metal Production	9227	9233	9840	10587	10573	8562	8885	892.4	894.3	893.4	935.9
Metal Usage	9219	9242	9812	10439	10514	8479	8939	925.9	877.9	887.1	932.1

World Refined Zinc Supply and Usage 2008 - 2013
000 tonnes	2008	2009	2010	2011	2012	2012	2013	2013
						Jan-Oct		Jul	Aug	Sep	Oct
Mine Production	11875	11620	12385	12661	13144	10854	11033	1111.3	1120.4	1161.5	1131.7
Metal Production	11774	11281	12896	13080	12592	10327	10938	1092.9	1100.5	1127.6	1165.2
Metal Usage	11574	10915	12649	12706	12340	10226	10940	1102.1	1085.9	1150.8	1199.1

Higher demand to sustain long-term rally in lead.

Lead, one of the most widely used non-ferrous metals is mainly used in the manufacturing of lead-acid batteries. China is the world leader with about 43 per cent share in the total global refined lead production as well as consumption. India consumes about 5 per cent of the global refined lead consumption.

DEMAND TO rise IN 2014

The International Lead and Zinc Study Group (ILZSG) forecast the demand for the refined lead to increase this year and next. In its study released earlier this month, it expects the demand for 2013 to increase by 5 per cent and for 2014 by 4.6 per cent. The consumption in China, the world’s largest consumer is expected to go up by 7.4 per cent next year on account of the expansions in automotives and mobile phone systems.

In addition to the general increase in demand mentioned above, there are two important factors that could drive the lead price higher next year. Firstly, in Europe where the demand was in a decline in 2011 and 2012, ILZSG forecast the demand to rise by 1.3 per cent this year and 2.3 per cent in 2014.

Secondly, ILZSG expects the lead market to run into a deficit for the first time since 2009 with an estimated shortage of 23,000 tonnes in 2014. These two factors could be the major supports for the lead price to go higher next year.

TECHNICAL OUTLOOK

In this week’s dissector we see the outlook of the lead futures contract traded on the Multi Commodity Exchange (MCX). The MCX contract has closed for the week at Rs 135.4.

Long-term view: The MCX lead futures contract is in a strong uptrend since 2009. The price is in a steady uptrend since it bottomed near Rs 40 in December 2008. Strong support is at Rs 110 and at Rs 100 which might not be broken very easily.

The uptrend will remain intact as long as the contract trades above Rs 100. Intermediate fall to these supports at Rs 110 and Rs 100 will be a good buying opportunity. A rise from Rs 110-100 supports will have the potential to take the price higher towards Rs 160 in the long-term.

Medium-term view: The MCX lead futures contract is in a medium-term downtrend. The price fell about 19 per cent from its December high of Rs 155.4 to a low Rs 125.3 this month. The contract is currently witnessing a corrective rally of this medium-term downtrend. This corrective rally can extend further to test the important Fibonacci retracement resistances near Rs 140 and Rs 144.

There is a high probability of the contract halting its corrective rally in Rs 140-144 region. Thereafter, the price can decline targeting Rs 120 and Rs 115 which are the important medium-term support levels.

Short-term view: The short-term outlook is bullish. The MCX contract has found good support near Rs 125 and has risen about 8 per cent in the last few weeks. Key short-term supports to be watched are the 100-day moving average near Rs 131.5, trend support near Rs 127 and then the 200-day moving average at Rs 124. The downside could be limited while these supports hold. Immediate resistance is near Rs 136. But this resistance is vulnerable to get broken and the contract can rise to Rs 140 in the short-term.