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Lead - 2007 (Last updated October 5th)ReportsPublishing Date

05 Oct 2008 12:00am GMT

AuthorMining Journal

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In 2007, renewed concerns about tight supplies and expectations of strong demand in the final quarterof 2007 pushed the price of lead on the London Metal Exchange (LME) to new record highs, with threemonths metal trading up to US$3,583/t in early October. The cash settlement price was close toUS$3,660/t, which compares with US$1,660/t at the start of the year and US$1,129/t at the beginningof 2006.

At around 22,000 t, LME stocks in early October were sufficient for less than one days globalconsumption, and the squeeze on supplies available for immediate delivery was showing no signs ofeasing. Lead shipments from Ivernia Incs Magellan mine in Western Australia had been suspendedsince March because of environmental problems at the port of Esperance, and a 10% tax on leadexports from China introduced by the government in June 2007 cut shipments by more than 70% in

August.

China drives demandAnnual global demand for lead now exceeds 8.0 Mt, and demand has been increasing steadily, year-by-year, from about 5.5 Mt/y in the mid-1990s. Leads use in batteries dominates demand andaccounts for 77% of global consumption. Pigments account for about 8% of global usage, rolled andextruded lead for 6%, alloys for 3%, shot/ammunition for 2%, cable sheathing for 1% andmiscellaneous uses for a further 3%.

The International Lead and Zinc Study Group (ILZSG), whose member countries represent 90% ofworld production and over 80% of world consumption of both lead and zinc, anticipates that globaldemand for refined lead metal will rise by 4.1% in 2007 to 8.26 Mt. This will be mainly due to a 12.4%increase in usage in China. In Europe, usage is predicted to rise by 2% and in the US it is expected tofall by 1.3%.

China is already the worlds leading consumer of lead (2.2 Mt in 2006) and demand for lead in lead-acid batteries is being driven by increased vehicle production and a rapidly expanding vehiclepopulation. ILZSG figures on global automobile usage per population density for 2005 showed 162people per vehicle in China and 152 in India, compared with just 1.8 vehicles per person in Japan andEurope, and 1.3 in the US. Some forecasters predict that China will account for 50% of global carsales over the next ten years.

Supply deficit continuesThe ILZSG expects that global lead mine production in 2007 will rise by 10.7%, to 3.79 Mt, with themost significant rises in China (11.9%) and Australia (16.4%). However, Ivernias new 100,000 t/ycapacity Magellan mine in Western Australia, the worlds only pure primary lead mine, has been put oncare and maintenance. Magellan has not been able to ship any lead concentrates since Marchbecause of environmental problems at the port of Esperance, and consideration is being given to

shipments of containerised lead through the port of Fremantle. Elsewhere, production is forecast toincrease in Bolivia, Canada, Mexico, the Russian Federation, Sweden and South Africa.Global production of refined lead is forecast to rise by 3.8%, to 8.21 Mt, with a 6.3% increase in China,a 3.3% increase in Europe and higher output in Australia, Kazakhstan, the Republic of Korea and theUS. Approximately two-thirds of refined lead production is recycled material.

China is likely to be responsible for around one third of the worlds refined lead production this year,but taking into account the fact that the Chinese Government abolished a 13% export rebate on leadmetal in September 2006, and introduced a 10% export tax in June this year, exports of refined lead

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metal from China in 2007 are likely to be far lower than in 2006, when they reached a record 580,000t.

The ILZSG expects that the world market for refined lead in 2007 will remain in deficit for the fifthsuccessive year, with a shortage forecast at just over 50,000 t.

Mine production additionsIn 2006, around 107,000 t of additional lead became available to the market as a result of the re-opening or opening of new mines.The largest was the 25,000 t/y Xiacun mine in Sichuan Province,China, which opened in July 2006. Elsewhere, the 20,000 t/y Sasa mine in Macedonia re-opened, andin the Altai region of Russia, the new 20,000 t/y Rubtsovsky mine came on stream.

This year, Apex Silver Mines Ltd is bringing its 65%-owned San Cristobal open-pit mine in Bolivia intoproduction (Sumitomo Corp 35%). The deposit hosts approximately 470 Moz of silver, 3.6 Mt of zincand 1.36 Mt of lead contained in 231 Mt of open-pittable proven and probable reserves. The mine isexpected to produce around 84,000 t/y of lead, and full production was scheduled to commence in thethird quarter of 2007. Mining activities have been contracted out to Washington Group International.

In Australia, Perilya Ltd is undertaking the staged development of its Potosi project at Broken Hill inNew South Wales, and access to the high-grade Potosi North area is expected to deliver ore to the

Broken Hill concentrator in the December quarter, 2007. The resource currently amounts to some 1.6Mt at 13.0% Zn, 3.1% Pb and 43.1 g/t Ag, and the underground operation could produce about 50,000t/y of lead. In Canada, Acadian Gold Corp brought its Scotia lead-zinc mine at Gays River in NovaScotia into production in May and should produce around 20,000 t of lead this year. A production levelof some 10,000 t is expected at the Duddar deposit in Pakistan, where Metallurgical Construction Corpof China now has a substantial interest.

OutlookAlthough the availability of additional concentrates could ease last years shortage of material availableto smelters, the decrease in exports of refined lead from China, as a result of the removal of export taxrebates and the imposition of an export tax, is having a significant impact on the supply of refinedmetal. Combined with the continuing strong demand for lead by Chinas car industry, this will likelyensure that supplies remain tight and underpin the current high prices for lead on the world markets.