Commodity Trading In Lead, BRIC Demand Growth
Of all the base metals the fundamentals suggest that commodity trading in lead could become very profitable going forward.
Here is a metal which is up against all manner of health and environmental legislation and pressure from action groups, the effect of which is to begin curtailing its supply on world markets.
Added to this is the ever growing demand for lead from the fast growing BRIC economies and you have all the ingredients for a solid bull market, where going long lead can reap rewards.
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You can gain exposure to the price action in this metal by for example trading lead futures on the LME or perhaps track an industrial metals commodity index using an ETF which focuses on base metals.
Combining fundamental analysis with your chosen commodity trading system provides you with a good basis for making profits from trading this base metal.
Just consider that the range of applications for lead has been reduced in recent years given the significant increase in health and safety legislation.
Environmental action groups maintain pressure on existing mines and particularly on proposals for opening new mines.
Country stocks declined 20% to 234,000 tonnes over this decade, while Metal Exchange commercial stocks declined by no less than 61% to 41,000 tonnes.
Lead content in paint and solder has been reduced drastically, and only paint used for external purposes has any lead content today.
Use of lead in gasoline has been withdrawn and has even fallen away in the emerging economies of Eastern Europe and Africa.
The main use of the metal (over 80%) is in batteries for road vehicles, not least because of the massive demand for cars in China and India.
Many western car manufacturers have built large car plants in China to meet this growing demand.
There is also a market for powering off-road equipment and for screens in televisions and computers to block harmful radiation. Refined lead consumption, according to WBMS, increased by 33% from 6.04 million tonnes (mt) in 1997 to 8.05 mt in 2006.
Within this overall figure there were declines of 8% and 7% in Japan and the USA respectively, while the BRIC (Brazil, Russia, India, China) posted a decade increase of 208% in demand.
And a closer look at the contribution of the BRIC countries shows that in 1997, they consumed only 14% of world demand whereas by 2006 this had become almost a third.
By far the largest factor was China, surging by 320% from 530,000 tonnes consumed in 1997 to 2,228,000 tonnes in 2006.
What about mining output?
Lead mines are under pressure to close because of health and environmental impacts. Just look at how mining production in the USA has fallen 3% over the 10 years to 2006 from 458,000 tonnes to 442,000 tonnes, according to WBMS. Doe Run, a major lead miner closed one of its mines in Missouri after over 40 years of operations, a further blow to world lead supplies.
Cannington mine in Queensland, Australia is owned by the largest mining company in the world, BHP Billiton, and is well placed to supply China.
Over the decade to 2006, world mining production increased 23% from 3.05 mt to 3.76 mt, which includes declines of 3% and 56% for the USA and Canada respectively. Australia (+30%) and Peru (+21%) showed solid production increases, but again it is the BRIC economies which catch the eye.
Brazil (+77%), Russia (+125%), India (+100%) and China (+109%) ensured that world production increased over the decade.
And significantly, the BRIC nations, while contributing 23% to the 1997 world lead mining output, contributed over 40% by 2006, an increase of 108% in a decade.
A look at the refined lead production world picture reinforces the growing importance and dominance of the BRIC states to this base metal going forward.
In 1997, the BRIC countries refined lead production represented 14% of the world output, but by 2006 this figure had increased to 37%, of which China made up 34%.
Over the same period USA and Canada output declined by 12% and 8% respectively.
Looking forward With such a supply and demand profile, the future is looking good for commodity trading in lead, and unless new mines are opened it seems supply will struggle to meet the demand.
More cars on China’s roads, larger trucks with larger batteries, and more computers purchased points to a strong consumption of lead for the foreseeable future.
Going long lead, long term, could be a winner.
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