In recent months, the demand for lead has noticeably surpassed its supply, leading to a continuous decrease in lead stockpilesThis shift has played a significant role in driving up lead prices, which has been a key trend for the year 2023. One of the critical points in this evolving market came on August 15, when lead futures on the Shanghai Futures Exchange reached 15,955 yuan per ton, marking a slight increase of about 0.35% for the dayJust weeks prior, on July 25, the prices surged to a record high of 16,210 yuan per ton, setting the stage for ongoing fluctuations in the commodity’s value.

The lead market has been significantly influenced by several underlying factorsA closer examination reveals the supply structure of lead ingots is composed of primary lead and recycled leadIn recent years, Chinese government policies have strongly advocated for the development of the recycling industry

As a result, the proportion of recycled lead in the overall supply has grown dramaticallyBy 2021, recycled lead accounted for more than 40% of total productionFast forward to 2022, Chinese lead ingot production comprised 47% primary lead and 53% recycled lead, marking a milestone where recycled lead overtook primary lead.

Statistical data from the National Bureau of Statistics shows that in 2022, China’s total lead output reached 7.811 million tons, reflecting a year-on-year increase of 4%. Out of this, the electrolytic lead production was 3.278 million tons, a modest increase of 2.91% from the previous yearThis robust performance is indicative of a larger trend: despite global fluctuations and market changes, the consumption of lead, particularly in lead-acid batteries, is becoming increasingly critical.

The demand landscape for lead in China is heavily dominated by the lead-acid battery sector, which accounts for approximately 75% to 80% of total lead consumption

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Specifically, these batteries are widely utilized in various applications ranging from electric bicycles—which continue to be the dominant segment—to automotive starter batteries, energy storage systems, and communication stationsThe rise of electric bicycles is particularly noteworthy, given their growing presence in urban environments.

Examining the trends concerning starter batteries reveals a notable increase in the ownership of vehicles and electric bicycles over the yearsBy the end of 2022, the total number of vehicles in China had reached approximately 315 millionThe typical lifespan of starter batteries hovers around 2.8 yearsConcurrently, the societal ownership of electric bicycles stood at about 350 million units, with their batteries needing replacement within a range of 1.5 to 3 yearsMoreover, regulatory changes, such as the implementation of new standards for two-wheeled electric vehicles, are expected to stimulate substantial replacement demand in the near future.

The automotive sector, on the other hand, is experiencing favorable policies aimed at boosting sales

Recent directives to optimize vehicle purchase rules and support the replacement of old vehicles are designed to stimulate consumptionFor example, on July 31, a notification regarding measures to restore and expand consumer expenditure emphasized easing automotive purchase restrictionsFurther, tax incentives for purchasing new energy vehicles were reiteratedThese measures collectively indicate a potential uptick in both automotive sales and, consequently, lead-acid battery consumption.

On the front of electric bicycles, a white paper released by EVTank in collaboration with the Institute of Economic Research highlighted a considerable total production volume of 59.04 million units in 2022, showcasing an annual growth rate of 8.5%. Additionally, in terms of exports, Chinese authorities reported that 2021 witnessed an increase in two-wheeled electric vehicle exports, culminating in a total of 22.87 million units being shipped out, thus positioning China as a crucial player in this global market.

When considering motorcycle production and sales, the trends indicate that the recent relaxation of motorcycle bans has positively influenced market dynamics

The production numbers for motorcycles reached over 20 million unitsHowever, the overall market still faced slight declines in sales figures from 2021 to 2022. That said, specific segments, such as leisure motorcycles, have seen substantial growth and now present a stronghold for industry expansion.

Additionally, the communication sector is poised for growthWith the steady expansion of 5G network infrastructure in China, companies such as China Tower are reinstating the use of lead-acid batteries within their operationsThis resurgence is expected to bolster demand for lead, presenting favorable consumption forecasts for 2023.

In terms of stockpiling, the London Metal Exchange (LME) has registered lead stock levels that have somewhat mirrored these trendsHistorical data since August 2020 shows the highest LME lead inventory reached around 137,500 tons, while the lowest dipped to just over 20,000 tons

As of August 9, 2023, LME lead stock was recorded at approximately 56,500 tons, reflecting a decrease from preceding periods.

In summary, while the lead market grapples with fluctuating commodity prices, historical patterns of supply and demand emphasize a tightening of inventories, driving prices upwardThe growth in consumption across sectors such as electric bicycles, automotive batteries, and energy storage is indicative of broader economic trends, underscoring the relevance of lead in China’s industrial landscape.

However, this growth does not come without challengesThe rise of lithium batteries as alternatives to traditional lead-acid batteries represents a significant competitive pressureThe year 2022 saw the production of lithium battery-powered electric bicycles dip by 12.6%, which signifies a decline in their market penetration

This transition to lithium alternatives has gained momentum as safety, cost, energy density, and lifespan considerations come into play.

Despite the rising prices of lithium, which as of mid-August reached around 234,500 yuan per ton, the cost advantages of lead-acid batteries may maintain their foothold in various markets for the foreseeable futureIt remains to be seen how long the trend can hold as fluctuations in the price of lithium can affect the adoption rate of lithium-powered alternativesRising sub-markets like sodium-ion battery technologies are beginning to assert themselves and may further disrupt the established preferences for lead-acid and lithium batteries.

Looking ahead, analysts at Jinyuan Futures maintain an optimistic outlook for the lead price trajectoryThey argue that enhanced sentiment from macroeconomic meetings is likely to lift market expectations