London 25/02/2013 - Lead consumption in China reached 4.628 million tonnes in 2012, up from 2.569 million tonnes in 2007, a rise of 80 percent over that five-year period. The pick-up in vehicle population, with strong growth in vehicle and e-bike sales, has been one of the main driving forces boosting lead demand.
The rapid increase in the country’s vehicle population through new sales will have seen a corresponding rise in demand for OEM lead-acid batteries, which will have had to be made from primary lead supply because the supply of secondary lead tends to lag three to five years behind the initial rise in OEM battery demand, i.e. when the OEM batteries need replacing.
Last year vehicle sales in China grew at a slower pace of 4.3 percent, which meant the pool of OEM lead-acid batteries in use would have expanded at roughly the same pace. In turn, this meant the demand growth for primary lead to produce the OEM batteries would have slowed too. In fact, refined lead production was all but flat last year, which suggests that primary lead production might have responded well to the slowdown in vehicle sales growth.
In 2007, secondary lead supply in China accounted for 23 percent of total lead production, in 2012, the figure had climbed to 34 percent. Although this is a noticeable increase, it is still well below the global average.
In 2012, global secondary supply was 5.985 million tonnes, while total refined production was 10.617 million tonnes. This meant secondary production accounted for 56 percent of total supply. In Europe, recycled metal accounts for around 77 percent of total supply and in the US it is closer to 90 percent.
This suggests that the China’s recycling industry is set for rapid growth, which should now be unfolding. The surge in OEM battery demand that accompanied the 45-percent increase in vehicle sales in 2009 should now lead to a pick-up in battery scrap entering the supply chain as the original OEM batteries start to fail after three or four years of use. The surge should continue after vehicle sales grew a further 32 percent in 2010.
We would now expect secondary lead supply in China to accelerate and account for a larger proportion of total lead supply.
With more recycled lead entering the supply chain and with vehicle sales expected to see a more moderate increase in growth at 8-9 percent this year, it will be interesting to see whether mine production growth is reined in after its 23.3-percent increase last year. If not, then there is a danger that lead stocks in China could continue to rise - it will then be interesting to see if the price differential with the LME drops to the extent that leads exports increase
(Editing by Mark Shaw)