Lead inventories in China, the world’s largest consumer of the metal, may be double the size of stocks held at London Metal Exchange’s warehouses after imports surged and demand from electric bicycle-makers failed to revive.
As much as 200,000 metric tons to 300,000 tons could be stored by smelters and traders, said He Yonggang, a sales manager at Xinling Refining Co, a Chinese lead refiner, citing traders. LME inventories were 114,175 tons on Aug. 11.
Sales to electric-bicycle makers, the major consumers of lead in China, have dropped significantly and raised concerns among traders and smelters, He said. The lack of revival in demand in China, which imported 23 times more lead this year, may stall an 80 percent advance in prices.
“Most traders and smelters are concerned about the declining lead products sales,” He said in an interview from Shanghai. “A majority of lead-acid battery is used in electric bikes, and since the financial crisis the e-bike industry has been in poor condition.”
Henan Yuguang Gold & Lead Co., the world’s largest lead smelter, dropped 6.9 percent to 16.69 yuan in Shanghai trading, compared with the 4.7 percent decline in the benchmark Shanghai Composite Index. Fengfan Co., which makes batteries, fell 7.7 percent to 12.80 yuan in Shanghai.
Shanghai Inventories
Lead for three-month delivery dropped 1.7 percent to $1,770 a ton in London at 10:17 a.m. local time, trimming the year’s advance to 77 percent. The metal, which isn’t traded on exchanges in China, dropped 61 percent in 2008. The Chinese inventory is the equivalent of about a month of output.
“Most of the lead inventories in China are concentrated in Henan and Shanghai,” Zhang Changhai, analyst at Beijing Antaike Information Development Co., said by phone today. In Shanghai alone, traders are storing as much as 50,000 tons of the metal, he said.
China imported 127,607 tons of lead in the first six months compared with 5,524 tons for the same period last year, according to customs data. Lead metal production in the nation dropped 1.1 percent in July from a month ago, according to data released today.
“As battery makers can’t pass on higher lead costs to their customers, many smaller ones have stopped production,” Yang Jing, a senior analyst at Zhuzhou Smelter Group Co., said today at a forum in Nanjing. “Many are forced to speculate by stockpiling the metal. High inventory has rendered Chinese domestic prices weaker than that on the LME.”
Electric bikes account for 20 percent of lead demand in China and automobile producers another 20 percent, with the rest consumed by other manufacturers including for communications equipment, Antaike said.
“Due to a shortage of lead concentrates and weak demand, smelters in China can’t run at full capacity,” Xinling’s He said. Lead consumption could also be lower now because consumers tend to replace batteries in bicycles in winter, he said.
Xinling, which has 100,000 tons of annual smelting capacity, is running at about 70 percent of utilization, according to He. Sales and profit have declined “significantly” from the same period last year, he said. The company, which also produces zinc, is based in Lingbao city, Henan province.
“Current zinc and lead prices are still not attractive enough for zinc and lead miners to reopen their mines as they can’t make a good profit,” said He.
Source: Bloomberg
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