Chinese Demand Leads to Soaring Lead Prices

Includes: BWLRF, IVWFF, LD
by: FP Trading Desk

Lead prices appear to be on the rise, as world production of the metal is expected to decline ahead of consumption this year after posting a surplus in 2008.

Hendrik Visagie, analyst with Octagon Capital, said while consumption of lead will drop to 8.6 million tonnes from 8.72 million tonnes, production will slip further to 8.55 million tonnes from 8.75 million.

This would work out to a deficit of 50,000 tonnes of the lead in 2009, as opposed to a surplus of 30,000 tonnes the year before.

Mr. Visagie said in a note to clients:

The reduction in lead metal production is a result of declining lead mine production due to the closure of a number of zinc mines, of which lead is often a by-product.

On Tuesday, the price for lead on the London Metal Exchange rose to $1.10 a pound, the highest it has been since May 2008. The price is also much higher than the 53 cents a pound average in the first quarter of 2009 and the 63 cents a pound in the second quarter.

Lead consumption in China has jumped, with imports of the metal up 148,000 tonnes and lead concentrate imports up by 172,000 tonnes in the first seven months of the year.

"The recent surge has come at a time of strong seasonal demand and reduced Chinese smelter capacity due to environmental concerns," Mr. Visagie said.

He now expects lead to average 88 cents a pound in the third quarter of 2009, $1 a pound in the fourth quarter, and $1.20 a pound in 2010.

The higher price will likely give a boost to lead-producing companies such as Ivernia West Inc. (OTCPK:IVWFF), Breakwater Resources Ltd. (OTC:BWLRF), and U.S. Silver Corp.