The International Lead Management Center

The International Lead Market and the Secondary Lead Industry

Secondary lead production is running at about 60% of total world production, but the secondary lead industry is still not in a strong position. I am sure you are all aware that the main threats to the industry are not environmental, but are economic. Lead prices are international and the focus for the global market is the London Metal Exchange (LME).

Some might imagine that as lead is a commodity, that price levels on the LME would reflect the levels of supply and demand, but lead is not like any other commodity. There are very few companies mining for only lead bearing ore. Most of the lead concentrate produced in the world is derived from either zinc/lead or silver/lead mines, or mines with all three metals and sometimes others such as cadmium. Indeed, the largest producer of lead concentrate from a single mine is the BHP Billington Cannington mine in Queensland, Australia and the company earns more income from the silver content of the ore than from the lead content. This is also the case for the lead zinc mines, with zinc being the more highly priced metal. So the more silver and zinc produced the greater the profits and the lead concentrate is sold as a consequence of either the silver or zinc production. In other words the lead concentrate is a mere by-product and unlike all other commodity metals traded on the world market, primary lead is not related to demand. So despite an average annual increase in lead demand of about 2%, total lead production, that is, primary and secondary lead, has been above world demand for the last 10 years, resulting in a low LME price for the refined lead.

This low price has not necessarily affected those companies with zinc/lead or zinc/silver/lead mines, but had serious adverse consequences for those companies with primary lead only mines and the whole of the secondary lead industry. Several secondary lead smelters have closed during 2003 in the USA and the EU. These include Noyelles Godault in France, Titov Veles in Macedonia, the number 2 primary refinery at Northfleet in the United Kingdom, secondary operations in Germany, Spain, and the United Kingdom and the temporary shutdown of Porto Vesme in Italy. The forecast in production for 2004 will be influenced principally by the recent closure of Pasminco’s Cockle Creek plant in Australia and the planned shutdown in December 2003 of Doe Run’s Glover operation in the United States.

Coupled to that there has been an increasing demand for lead acid batteries in many Far Eastern markets of between 7 and 11% per annum, leading to seemingly chronic shortfall in the supply of used lead acid batteries required to meet local demands lead alloys for batteries. One secondary lead plant in Malaysia has resorted to smelting a mix of primary lead concentrate and used lead acid batteries to meet the demand in Malaysia for lead alloys, but most other secondary lead smelters cannot treat both used lead acid batteries and lead concentrate. For those companies in this position production is reduced and with that, the profits.

For secondary smelters in the developing world the situation has for the most part been even worse. The EU and many other OECD member countries have passed laws forbidding the shipment of used lead acid batteries to country not listed in Annex VII of the Basel Convention, that is effectively, any developing country. This legislation is designed to conform to the Basel Convention’ Ban Amendment, which will prohibit the movement of used lead acid batteries from and Annex VII listed country to a country not listed in Annex VII.

However, the Ban Amendment will not come into force as a legally binding part of the international convention until three quarters of the delegate countries, that is, the Parties to the Convention (COP) have ratified the Ban. To date, only half of the COP members (41) have ratified the Ban[1]. So the proposed Ban is not an international regulation and any such prohibition to trade from one country to another is outside the rules of the Basel Convention.

The consequence of such prohibitions to the trading of used lead has lead to a closed market in the EU and many countries that belong to the Organization for Economic Cooperation and Development (OECD) and in turn this has lead to lower prices for used lead acid batteries paid by the secondary smelters. In some cases the price has dropped to levels so low that many battery collectors have stopped collecting used lead acid batteries because it is no longer profitable. In the United Kingdom (UK) this situation has resulted in fewer used batteries being recycled with recovery rates falling from about 95 to 90%. Now this situation would be acceptable if the used batteries not collected were exported to secondary smelters in the developing world, such as the Republic of the Philippines, but they are not, and nobody is quite sure where they are or what happens to them. However, it is not all “doom and gloom”, there are signs of recovery in the lead price and forecasts of increased lead demand. For the last six months or so the 12 month forecast for lead demand has been predicting a deficit in global lead production of about 130,000 MT for 2004[2]. These forecasts have lead to a steady, but consistent increase in the LME lead price[3]. It looks as though this increase is sustainable and will continue into 2005.

The second significant development on the horizon is the “stop/start” motor vehicle engine technology. This engine has been developed as a result of pressure from the environmental groups to reduce vehicle pollution in cities and towns. Basically, the engine will switch of when the accelerator pedal is raised and the car is stationary, and restart instantly when it is engaged.

However, this stop/start engine technology requires a higher voltage to operate successfully. The system approved by the EU and accepted by the motor vehicle manufacturers is a 42 volt system powered by a 36 volt battery[4]. The adoption of such a system will require an increase of very nearly three fold in the quantity of lead required for an automotive battery. The motor industry supports this initiative because it will also enable the installation of more sophisticated electronic information[5] and entertainment devices in the vehicle.

Furthermore, as some existing electronic components such as the lighting systems, are more reliable in 12 volt mode it is most likely that there will be two lead acid batteries in an automobile. Indeed, the vast majority of EU motor manufacturers are planning to build vehicles with both 12 and 36 volt batteries. The date for the introduction of this technology in the EU was set at 2006, although this may be subject to delay. Nevertheless, it will only be a matter of a few more years and then there is likely to be an enormous increase in lead demand.

The challenge for the lead industry will be to maintain its dominant position in the automotive market. Nickel metal hydride battery manufacturers have been actively developing a rival 36 volt battery to be the preferred choice of motor manufacturers. This battery is known to be reliable, but will be much more expensive than the lead acid battery.

Paradoxically, while the anticipated increase in the leads price will be welcome by the secondary lead industry, if the price of refined lead increases too much, then the price of a 36 volt lead acid battery will inevitably increased to a price ever closer to the nickel metal hydride alternative. The more expensive the 36 volt lead acid battery becomes, the more likely the motor vehicle manufacturers are to choose the nickel metal hydride battery. So the lead industry should always take the opportunity to promote the fact that there is an established and effective infrastructure for the collection, storage, transportation and recovery of used lead acid batteries, but the nickel metal hydride battery manufacturers have little or no recycling infrastructure or capacity.

BW November 2003

[1] SBC – Ban Amendment Ratifications - , Nov. 2003

[2] ILZSG - LZ/282 Rome Meeting, 25 November 2003

[3] LME – Standard Lead Price Index November 2003

[4] The Service Technicians Society (STS) – 42 volt update, September 2001, Daniel Holt, Editor.

[5] Car Crackers, August 21, 2001 - Hybrid Electric Technology