Lead: China To Dominate Global Mined Production Growth

BMI View: We expect global mined lead production to reach 6.6mnt (million tonnes) in 2016, marking an average annual growth rate of 7.3% from 2011 levels of 4.6mnt. This increase in lead production will be mainly driven China, the world's largest producer of lead at more than 50% of global mined output. That said, our forecast remains vulnerable to several downside risk including an increasingly interventionist stance by the Chinese government and a further deterioration in lead prices.

We believe global mined lead production will experience a steady growth over the coming years, increasing at a rate of 7.3% per annum, from 4.6mnt in 2011 to 6.6mnt by 2016. The majority of this output will continue to be driven by major producers in China, the world's largest producer of lead at more than 50% of global mined output.

Rampant Growth Ahead
Global - Mined Lead Forecast & Growth

China was the main driver of global growth in mined lead output in 2011 and we expect this to continue for the foreseeable future. Whilst we expect supply growth in China to slow over the coming years, partly on the back of our below-consensus view on Chinese economic growth, we still forecast the country to add another 1.5mnt of mined lead supply over the next five years.

China To Remain Key Driver
Global Lead Mine Production, 2011

This will have important implications for the global lead market as it will reduce the impact caused by key mines coming offline in Australia and Canada. These mines, including Minmetal's Century Mine and Xstrata's Brunswick Mine, will be defunct by 2016 and will remove around 300ktpa of lead. Therefore, we do not envisage the global lead market posting an annual deficit until 2014 at the earliest. Within Canada, we foresee very few new lead mines coming online over the coming years as a lack of exploration and geologic mapping has caused the country's known lead reserves to decline steadily over the last 30 years. With this dynamic of growing lead production from China, but falling output from traditional producers such as Australia and Canada, we expect the market to become even more consolidated in China's hands.

Little Growth Outside China
Global - Largest Forecast Increases In Lead Mine Production 2011 - 2016 (kt)

Outside of China we see little growth as depressed prices and record exchange stockpiles deter new investment in lead mines. While we expect the US to remain the world's third largest lead miner, after China and Australia, market surpluses will create headwinds for US producers even as demand for lead-acid batteries grows globally. Overall, we forecast prices to average US$1,950/tonne in 2012 and US$1,900/tonne in 2013, compared to an average price of US$2,391/tonne in 2011. Rising cash costs, coupled with the weakness in lead prices could weigh on miners' profits and result in the delay or cancellation of lead mining projects initially scheduled to come online.

Table: Significant Lead Projects
Country Company Mine Expected Output Year
Source: BMI, Company Announcements
Australia Kagara Mount Garnet 30ktpa 2012
India Hindustan Zinc Rampura-Agucha Increase to 73ktpa 2012
India Hindustan Zinc Agnigundala 5ktpa 2012
India Hindustan Zinc Sindesar Khurd 30ktpa 2012-2013
Australia Xstrata George Fisher Increase to 250ktpa 2013
United States Teck Resources Pend Oreille Potentially 40ktpa 2013
United States Elkhorn Goldfields Montana Tunnels 21ktpa na

Risks To Outlook

Although we highlighted that global lead production should continue to grow at a steady rate over the coming years, our forecast remains vulnerable to several downside risks. We expect to see more production losses from the continual restructuring of China's mining sector as part of the country's 12 th Five-Year Plan (2011-2015) to achieve widespread industry consolidation. The closing down of smaller, more inefficient mines and consolidation of production into giant, vertically-integrated state-owned outfits should continue in the coming years. That said, such a move is unlikely to reduce supply significantly as majority of the mining production in China are dominated by state-owned enterprises and the planned closures usually only affect private owners of small mining companies.

In addition, we believe the Chinese government will impose more stringent regulations on the mining sector due to rising concerns over environmental issues and illegal mining activities. A significant decline in lead prices, perhaps instigated by a slowdown in China even sharper than our expectations, would see a swathe of projects being cancelled as they become economically unviable.

Table: Global Lead Mined Production Forecast
2009 2010 2011 2012f 2013f 2014f 2015f 2016f
e/f = BMI estimate/forecast. Source: BMI, WBMS
Global Lead Production (mnt) 4.1 4.1 4.6 5.5 5.8 6.1 6.4 6.6
% y-o-y change 8.6 -0.9 14.1 17.8 6.4 4.9 3.9 3.3
This article is tagged to:
Sector: Mining
Geography: Global, Australia, Canada, China

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