The fluctuating dynamics of lead supply and demand have led to a notable decline in inventories, which in turn has significantly elevated lead prices on the marketThe complex interplay between production capabilities and end-user requirements is increasingly relevant, especially in light of the figures reported as of mid-August 2023.
As of August 15, the lead futures on the Shanghai Futures Exchange stood at 15,955 yuan per ton, reflecting a modest growth of 0.35% for that dayThis follows a remarkable surge noted on July 25, when lead prices hit a peak of 16,210 yuan per ton—setting a new record for the year.
The observed trends in lead pricing throughout 2023 can largely be attributed to changes in the fundamental market structure.
Intricate shifts in the fundamentals
The supply of lead ingots originates primarily from two key areas: primary lead, extracted directly from ores, and recycled lead, derived from the reprocessing of used products.
In recent years, proactive government initiatives have championed the growth of the recycling industry, leading to a significant transformation in the supply structure of leadAs a result, the proportion of recycled lead in overall production has been on the rise, surpassing 40% as of 2021.
In 2022, figures demonstrated a near parity in China's lead production, where primary lead (electrolytic lead) accounted for 47%, and recycled lead claimed 53%. The total output of electrolytic lead reached approximately 3.278 million tons, marking an annual increase of 2.91%. According to statistics, China’s total lead production in 2022 stood at 7.811 million tons, representing a 4% year-on-year growth.
Analyzing China's consumption patterns reveals that the lead-acid battery industry dominates initial consumption, consuming around 75-80% of the total lead demand
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Primarily, lead-acid batteries find their applications in various sectors—including electric bicycles (power-type batteries), automobiles (starting-type batteries), energy storage systems (storage-type batteries), and communication base stations (fixed-type batteries)—with electric bicycles holding the most significant share.
Starting batteries are the primary segment consuming lead-acid batteriesTrends indicate a steady increase in the ownership of both automobiles and electric bicyclesBy 2022, the number of automobiles registered reached 315 million, where typical starting batteries have an average lifespan of approximately 2.8 yearsThe fleet of electric bicycles, on the other hand, hit 350 million units, with their power-type batteries lasting between 1.5 and 3 yearsFollowing the implementation of the “new national standards” for electric bicycles in April 2019, 2022-2024 is anticipated to witness a peak in replacement purchases—potentially replacing over a hundred million non-compliant vehicles; hence, the high ownership levels present a robust demand for battery replacements, bolstering the consumption of lead-acid batteries in China.
Recent favorable policies in the automotive sector, reinforced on July 21, include measures aimed at optimizing restrictions on car purchases, support for updating older vehicles, and acceleration of the second-hand car market development—totalling ten actionable measures.
Specifically regarding electric bicycles, a white paper released jointly by EVTank, the Yiwei Economic Research Institute, and the China Battery Industry Research Institute shared insightful statisticsThe report indicates that in 2022, China's total output of electric two-wheelers reached 59.04 million, reflecting an 8.5% year-on-year growth
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In terms of exports, data from the General Administration of Customs of China revealed that 2021 marked a peak in two-wheeled electric vehicle exports, with a total of 22.87 million units shipped abroad.
Looking at the broader automotive market, there is a notable trend toward the "premiumization of traditional fuel vehicles and the widespread adoption of new energy vehicles."
Statistics from the China Association of Automobile Manufacturers highlighted that despite a notable surge in production and sales resulting from tax incentives for fuel vehicles in 2022, cumulative growth rates showed signs of moderation in the first half of 2023. Car production and sales figures for June 2023 recorded 2.561 million and 2.622 million units respectively, realizing month-on-month increases of 9.8% and 10.1%, with year-on-year growth of 2.5% and 4.8%. Overall, the first half of 2023 saw a total of 13.248 million vehicles produced and sold, which exhibited a year-on-year increase of 9.3% and 9.8% respectivelyAmong these, new energy vehicles accounted for 3.788 million of the production and 3.747 million of the sales with striking year-on-year rises of 42.4% and 44.1%, achieving a market share of 28.3%.
In the realm of motorcycles, relaxation of bans on motorcycle use has stimulated a revival in production and salesData indicates that in 2021, motorcycle production volumes reached 20.1952 million, reflecting a significant growth of 12.98%. However, in subsequent years (2021-2022), the total sales figures showed a decline to 21.2922 million and 21.42 million respectively, marking decreases of 16.08% and 15.55%.
In a more comprehensive view, despite the challenges faced, the sector demonstrates resilience, particularly in the leisure motorcycle market, where demand for large-displacement vehicles has surged, driving growth in that segment
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In June 2023 alone, motorcycle production and sales reached 1.6612 million and 1.6276 million units respectively, showcasing a slight decline in production but a year-on-year sales uptick of 1.24%.
Beyond personal vehicles, the communications market is making strides, particularly with the stable progress of 5G base station constructionNotably, China Tower has reinstated the use of lead-acid batteries, which is expected to significantly boost lead consumption in 2023.
On the whole, forecasts indicate that in 2022, China's lead production totaled 7.811 million tons, reflecting a 4% increase year-on-yearSMM data from July 2023 indicated output of electrolytic lead at 319,700 tons, a monthly increase of 9.1% and a year-on-year rise of 21.94%. Cumulative production figures from January to July 2023 indicated a substantial year-on-year growth of 17.63%. On the recycled lead front, June output was reported at 339,000 tons, down by 8.23% month-on-month but on par with last year's figure.
When viewing supply and demand, it’s clear that in recent years, the demand growth in key sectors has outpaced the rate of supply growth, thereby continuously reducing inventories.
On August 9, LME recorded lead inventories totaling 56,500 tons—a decrease of 50 tons from the previous dayOver the past week, total LME lead inventories cumulatively increased by 1,250 tons, a rise of 2.26%, and over the past month—1.21 million tons, reflecting a significant increase of 27.34%.
Historical data reveals that since August 10, 2020, the peak LME lead inventory reached 137,500 tons, while the lowest recorded was merely 20,200 tons, with a mean inventory of around 62,800 tons
Recent surveys by SMM indicated that as of August 14, total social inventories of lead ingots across five major locations were at 55,200 tons—falling below average stock levels.
Such subtle shifts in fundamental metrics coupled with consistently declining inventories have emerged as primary factors driving upward pressure on lead prices.
Confronting intense competition
In recent years, the burgeoning sector of new energy plays host to intensifying competition at the raw material levelLithium batteries have increasingly penetrated markets traditionally dominated by lead-acid batteries.
According to data from the China Association of Automobile Manufacturers, vehicle production and sales reached a cumulative total of 3.248 million and 13.239 million during the first half of the year, representing increases of 9.3% and 9.8% respectivelyWithin these numbers, new energy vehicles accounted for cumulative production and sales totaling 3.788 million and 3.747 million, with astronomical year-on-year growth rates of 42.4% and 44.1%, leading to a market share of 28.3%. In 2022, production of lithium battery-powered electric two-wheelers was recorded at 11.51 million units, a decline of 12.6% from previous years.
Moreover, sodium-ion batteries are gradually gaining traction and may capture part of the market previously occupied by lithium and lead-acid batteries in electric motorcycles.
Data from the Resource Recycling Industry Technology Innovation Strategy Alliance indicates that lithium-powered electric bicycles represented approximately 16%-20% of the electric bicycle market in 2020, with projections estimating this could rise to 50% by 2030.
In terms of safety, pricing, energy density, and lifespan, there exist notable differences between lithium and lead-acid batteries.
In contrast, the recent soaring prices of lithium—where, as of August 15, the average price of battery-grade lithium carbonate reached 234,500 yuan per ton—result in lead-acid batteries maintaining a significant cost advantage
Data from EVTank indicated that the output of lithium battery-powered electric two-wheelers dropped by 12.6% in 2022, resulting in an overall market penetration decrease from 24.2% in 2021 to 19.5% in 2022. If lithium prices continue on an upward trajectory, it could slow the pace of this substitution process.
At the same time, sodium-ion battery technology is emerging, threatening to further erode the market shares of both lithium-ion and lead-acid batteries in the electric two-wheeler segment.
When contemplating the future trajectory of lead prices, JinYuan Futures maintains a macro view with ongoing key meetings occurring within and outside China, which could foster warmer market sentiment and boost risk appetite, creating favorable conditions for lead pricesOn the supply front, subpar growth in global lead ore supplies and a lack of new projects suggest the tight market dynamics will not alter soonCurrent low levels of TCs (treatment charges) for domestic lead mines combined with sustained low imports, suggests challenges remain for domestic refining operations and overall lead outputEstimates for electrolytic lead production for August are projected to see an incremental rise of around 20,000 tons; however, the recycling sector faces difficulties where raw materials like wasted batteries remain in short supply.
From a demand perspective, concerns surrounding overseas economic downturns appear to be mellowing, presenting a resilient demand outlook with a slow decline patternAfter recent pricing recoveries, export expectations for lead ingots and lead-acid batteries seem to wane, yet China's entry into the peak consumption season for power lead-acid batteries—combined with supportive policies for automobile consumption—could pave the way for an uptick in battery consumption later this year
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