Zinc-Lead Price Balance Flips
Zinc, which is normally less expensive than lead, has held a price-premium for the longest stretch since 2010 as the outlook for lower mining output coincides with accelerating global demand for cars, appliances and laptops.
The CHART OF THE DAY tracks zinc and lead prices on the London Metal Exchange in the past four years. The green areas in the lower panel show that lead was consistently the more expensive material except for some brief periods. The premium swung to zinc on June 4, and has been there for the longest stretch since June-July 2010, data compiled by Bloomberg show.
Supply of zinc from mines "will be increasingly constrained by high-profile closures," and producers have limited amount of new capacity due on stream, BNP Paribas SA said in a report last week. By contrast, lead is less prone to mining problems because half the global supply comes from recycling of batteries, according to Xiao Jing, a base metals analyst at Beijing Capital Futures Co.
Zn and Pb prices typically move in tandem because much of the mined supply comes from the same source, but we have seen a break in the normal relationship because zinc is responding to a supply disruption and lead is less sensitive," Xiao said. "Demand for zinc remains robust amid record car sales in China, supporting demand for zinc-galvanized steel plates."
Refined zinc supply trailed demand in the first four months of 2014, according to the International Lead and Zinc Study Group, while stockpiles at warehouses monitored by the LME and Shanghai Futures Exchange are now about half the levels at the end of 2012, according to bourse data. The squeeze will tighten as some mines close. MMG Ltd.’s (1208) Century open pit in Australia is due for closure next year and the start-up of its Dugald River project is delayed, according to Ju Guoxian, an analyst at GF Securities Co.
Demand for automobiles is resilient. Sales in China, the world"s biggest market, increased by a monthly average of 12 percent in 2014 from a year earlier and U.S. sales in May were at the best annualized pace since early 2007.
Zinc is used to galvanize steel to protect it from corrosion. About 80 percent of lead is used in batteries, according to the study group.
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