The Current Price and Future Value of Lead: A Presentation on the Upward Trend of Lead in the Asian Futures and Commodities Markets over the Past Decade By: Bryan Baxter Tippet

1
The Current Price and Future Value of Lead
A Presentation on the Upward Trend of Lead in
the Asian Futures and Commodities Markets over
the Past DecadeBy Bryan Baxter Tippet
?
?
? Introduction ? This
presentation is dedicated to determining the
actual price of lead in the current world market,
which is ripe with demand for lead. United States
citizens might not realize it due to all of
leads negative publicity but lead is an
internationally desired commodity. This is
determined by its utility. Primarily, lead is
valued for its use as a superior material in car
batteries. The current spot (cash) price of lead
is 975 a ton. For obvious reasons lead is not
traded on the U.S. commodities exchanges. However
it is traded on nearly all Asian futures markets
and on the London Metal Exchange, with
particularly high activity in China and India.
Lead, as a commodity, is traded primarily in soft
and animated forms, as an alloy or in
copper-based lead scrap. In
countries such as India and China, who have
enjoyed tremendous economic growth over the past
decades, many citizens are beginning to purchase
automobiles on a wider scale, fueling demand for
lead because of its use in car battery
production. India does not have any major lead
ore deposits and imports around 50 of its
requirements, fueling a demand for a pricing
standard on particular denominations of lead, for
exchanging lead between borders require a
standard price since it would be very hard to
haggle over the price of something such as lead.
The futures markets trading lead provide the
world with a standard price for trading lead.
? Leads Natural Value ?
What are the historically and naturally valuable
qualities of lead? Lead can be described as being
a very supple and non-corrosive metal that has
been used for thousands of years. Its historic
uses are wide and varying. In modern time it was
the advent of the machine age that helped employ
the use of lead in things such as bearing metals,
cable insulators, caulk and solder, and also type
metal. A lot of these lead technologies have
since become archaic, however leads use in car
batteries continues to this day.
Specifically, the starting-lighting-ignition
lead-acid batteries have continued to employ lead
because of its malleability in making very exact
internal matrices for batteries. It is also
prized for its improvements to SLI reliability
and also for its anti-corrosive qualities so
highly prized in batteries. The net demand for
leaded batteries represents 88 of the U.S.
consumption in lead. Other uses include
ammunition, glass, and casting metals.
Graphical Rise of a Pound of Lead in Response to
Changes in Demand
In the United States lead has been cast out as
an environmental and safety hazard since it was
found to be harmful. However, even though the
U.S. may try to sweep lead under the rug there
are still a great number of industrial purposes
that lead serves, the most important being the
use in car batteries. The use of lead in car
batteries has increased rapidly, forcing demand
to overreach supply. In fact, according to the
International Lead and Zinc Study Group, 2008 is
expected to be the fifth consecutive year in
which there is a supply imbalance in the lead
trade. The ILZSG forecasts a shortage of 50,000
tons (Wright, 2007). Because of the simple
economics behind that statement the price of lead
in markets where it has traded has risen
dramatically.
? Mining Activity and the Rise in ETF Prices ?
There have been recent reports that
show that base metal mines are boosting ETF
prices. Exchange Traded Funds are a composition
of securities belonging to a particular country
and ETFs act as a vehicle to invest in a certain
country. Many investment analysts are now saying
that strengths in base metal markets are boosting
ETF prices for countries located in continents
that mine base metals such as Asia, South America
and Australia with their infamous Rio Tinto
mines.
? Reasons for Increased Demand ? Where
is all of this demand coming from? In 2007 global
demand for lead rose approximately 4. However
this increase was primarily fueled by the
dramatic rise in lead consumption in china of
12. The explanation for this dramatic increase
in Chinese lead consumption can be attributed to
the growth of their automobile production and
consumption. Currently China is the second
largest market for car sales. In 2007 Chinese
auto output grew 15. Furthermore, experts
predict a sustained growth of 15 through the
decade. China is poised to become the world
leader in automobile production and consumption.
A lot of lead-acid batteries will be required to
fuel this expansion. The specific reason for
the surge in Chinese car sales is the amazing
increase in personal car ownership because of
more disposable income per citizen. It is only
recently that the average Chinese citizen was
both allowed to own a car and have been able to
afford a car. Up until now the only cars you
would have found on a Chinese road would have
belonged to the government. A recent report out
of Beijing reports that sedan car ownership in
china grew by 33.5 last year to 11.5 million.
Currently only 2 of Chinese citizens own a car.
This number is expected to rise, fueling demand
for more lead-acid batteries which should lead to
positive gains by lead as a commodity.
Brazilian ETF Price Chart
The Future of Lead Futures Questions that will
determine future prices ? How much of chinas
future lead consumption will come from domestic
mining
versus foreign imports? ? Is the lead market
headed for saturation and surplus? If so will
demand
lessen or will china and India continue to fuel
demand by themselves? ? How viable and
profitable is modern lead mining? ? Are there
major differences between primary versus
secondary lead? ? What and how big of a role
will recycled lead play in the price of lead?
Similarly what
will be the future role of scrap metal sources in
lead consumption? ? What effects will
increasing environmental awareness have on
lead-acid battery recycling opportunities,
especially due to recent regulations on
collection and eco-friendly lead-acid battery
recycling?
Australian ETF Chart
Sources"Asia Scrap Lead Prices." Spot Market
Pricing. 11 Dec. 2008. RecycleNet. 9 Dec. 2008
lthttp//www.scrapindex.com/metal/asia/lead/index.
htmlgt. Dyson, Tom. "Still Available
Double-Digit Yields in Australia." 7 June 2007.
Daily Wealth. 9 Dec. 2008 lthttp//www.dailywealt
h.com/archive/2007/jun/2007_jun_07.aspgt. Kedrosky
, Paul. "Brazil Powers Ahead." ETFs. 12 Mar.
2008. Infectious Greed. 9 Dec. 2008
lthttp//paul.kedrosky.com/archives/2008/03/12/braz
il_powers_a.htmlgt. London Metal Exchange - 5
year lead spot price. Raw data. 10 Dec.
2008. Metal Bulletin, Asian Lead and Zinc
Conference, 30 Oct. 2008, Pudong Shangri-La
Hotel. MetalBulletin Events. ltmetalbulletinstore
.com/images/lead/asian_lead_zinc_conference.pdfgt.
Wright, Scott. "Lead Bull Market." Zeal LLC 29
June 2007.
Declining Prices of Lead Because lead has been
increasing in value many mining companies have
been created or have went back into business.
However, as supply has started to reach demand
prices have begun to fall. Blue Note Mining Inc.
recently close a lot of its Zinc and Lead
operation because even thought they were running
mines efficiently the drop is base metal prices
has rendered their business unprofitable. The
moment there became a balance between supply and
demand for lead, around 2007, prices began to
stabilize and then decrease. Because of the
desire to reap mining profits from base metals
mining companies have driven down the price of
lead.
Conclusion To conclude this paper is not simply
about trying to make money on Asian Lead Futures
rising. The commodities markets are in existence
because they set prices for commodities so that
they can be traded at a regulated, standard
price. India needs lead to be on the futures
market because they import so much lead. Think
about how much time and money would be wasted
between Indian importers and foreign exporters in
deciding the value of lead and drawing up the
contracts? Because there is a standard trading
price for lead there can be efficient, fair
exchange between countries.
Declining Lead Prices