By Raul de Frutos
Lead prices rose sharply last week, adding to the year's gains. From its January lows, lead is up 52% on the year-to-date. Not bad for a metal whose fundamentals looked neutral at best.
The International Lead and Zinc Study Group recently convened in Portugal to deliver its forecast for the coming year. The group anticipates that, through the end of the month and year, supply will exceed demand in the global refined lead metal market by 42,000 metric tons. In 2017, the group predicts a closer balance, but still a surplus of 23,000 mt.
The 3-Month LME lead price hits a three-year high. Source: MetalMiner analysis of Fastmarkets.com data.
Perhaps if you narrowed your view to lead's supply/demand fundamentals you missed this rally. However, if you paid attention to the ongoing monster bull market in the metal complex, you shouldn't have.
On the first of September, we recommended lead buyers to hedge/buy long-term forward when prices were at $1,900. A clear buy signal was given when prices broke above a price consolidation. As we remarked back in July:
Lead prices are being driven by funds' increasing appetite for industrial metals. This means that even though lead fundamentals don't look overly bullish, the wind is now blowing at lead's back. Funds are either seeing a tightening in the fundamentals that we can't see yet or they are simply buying metals as sentiment in the industrial metals complex has improved. Despite neutral fundamentals, lead prices could keep rising if this broad move continues."
What This Means For Metal Buyers
Lead prices are playing catch-up. They have lagged behind zinc's performance all of the year, but it's not a surprise that lead prices are also surging. The closure of mines caused zinc prices to rally this year but it seems like the market has ignored the fact that mine closures also affect lead supply.
After this sharp rally, prices might need some time to digest gains, but, overall, as long as the industrial metals bull market continues, we can only continue to expect lead prices to work their way higher into 2017.