The Star of base metals in 2007

Little known to many people, the lead that is used in car batteries is classified as part of the base metal family in the metal industry; And it is likely that Lead price will be the top investment in the metal family this year.

Lead is a metal that has one of the lowest inventory level among the base metal family, and that inventory is still falling; at the same time demand is still strong.

Lastest news about Lead is that China may slash export of Lead by more than half after the government imposed a tax on overseas sales, thereby worsen global shortage:

According to The International Lead and Zinc Study Group, this year's shortage of lead will be over 50,000 tons. Global demand will rise by 4.1% to 8.26 million tons, with China's usage increasing 12.4%, mainly because of the expanding car ownership.

China's economy has grown by an average of about 9.5% a year for the past decade, making vehicle ownership affordable for more people. The country's vehicle sales increased 25% last year to 7.22mil units, surpassing Japan as the world's second-largest auto market.

Lead is a poisonous substance, exploration of lead by miners is difficult and slow due to environmental issues. Reduced shipments from China, where demand for the metal is growing because of increased vehicle sales and production, may boost prices further. I do forsee that Lead price rising to $3000/mt in the future.

Lead futures is a leveraged product, about 13 times. So if Lead price really rises to $3000/mth as per my prediction, this is 12% upside; and due to 13 times leverage effect, the end result will be 12% x 13 = 156% return. Margin required for 1 lot of Lead futures is USD4,500.

For the Lead chart, look at: http://basemetal-trading.blogspot.com/2007/06/super-bull-run-for-lead.html

Re: The Star of Base metal in 2007

BREND said:

Little known to many people, the lead that is used in car batteries is classified as part of the base metal family in the metal industry; And it is likely that Lead price will be the top investment in the metal family this year.

Lead is a metal that has one of the lowest inventory level among the base metal family, and that inventory is still falling; at the same time demand is still strong.

Lastest news about Lead is that China may slash export of Lead by more than half after the government imposed a tax on overseas sales, thereby worsen global shortage:

According to The International Lead and Zinc Study Group, this year's shortage of lead will be over 50,000 tons. Global demand will rise by 4.1% to 8.26 million tons, with China's usage increasing 12.4%, mainly because of the expanding car ownership.

China's economy has grown by an average of about 9.5% a year for the past decade, making vehicle ownership affordable for more people. The country's vehicle sales increased 25% last year to 7.22mil units, surpassing Japan as the world's second-largest auto market.

Lead is a poisonous substance, exploration of lead by miners is difficult and slow due to environmental issues. Reduced shipments from China, where demand for the metal is growing because of increased vehicle sales and production, may boost prices further. I do forsee that Lead price rising to $3000/mt in the future.

Lead futures is a leveraged product, about 13 times. So if Lead price really rises to $3000/mth as per my prediction, this is 12% upside; and due to 13 times leverage effect, the end result will be 12% x 13 = 156% return. Margin required for 1 lot of Lead futures is USD4,500.

For the Lead chart, look at: http://basemetal-trading.blogspot.com/2007/06/super-bull-run-for-lead.html

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well in hindsight yes, thanks

Btw do u think Zinc will do a lead? i.e. has dropped from its high but will surpass it strongly with good fundamentals?

Also what do you think of copper & nicle atm?

thx

MS

Re: The Star of Base metal in 2007

michael_selway said:

well in hindsight yes, thanks

Btw do u think Zinc will do a lead? i.e. has dropped from its high but will surpass it strongly with good fundamentals?

Also what do you think of copper & nicle atm?

thx

MS

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Copper is building up huge amount of cancelled warrants, possibly of continuing drawdown in copper inventory in the near future, thereby pushing the price higher.

Currently I'm bearish on zinc and nickel, bullish on crude oil.

Re: The Star of Base metal in 2007

Lead is up another USD75 today:
http://basemetal-trading.blogspot.com/2007/07/review-on-lead-trade.html

Re: The Star of Base metal in 2007

The star metal of 2007, Lead, continues its rally today.

Lead continued its recovery in Friday's premarket trading on the London Metal Exchange as a flow of money returned to the market, while copper trended sideways on the subprime crisis and slow summer trading, analysts said.

Lead began Friday at $3,235 per tonne, where it had closed on Thursday. The heavy metal did not trade below its opening price and saw highs of $3,320.

"Lead reached highs at the end of July. It came off those highs and is now making a technical recovery," said a London-based analyst. "It's the same story as before and the same flow of money that was behind the highs in the first place." said a London based analyst.

The analyst added that the introduction of a 10-percent export duty on refined metal from China and the suspension of shipments from Ivernia's Magellan Mine in Australia have been causing supply concerns for lead over recent months.

"Over the last few days people have been bidding lead up at the close of trading. There is not much to say, it's just money pushing prices up. There has also been some short covering recently that has helped elevate lead," the analyst said, adding that the general feeling was that lead was too high.

Total lead stocks were at 35,550 tonnes after no material entered LME warehouses and 1,200 tonnes left from Singapore.

Lead chart: http://basemetal-trading.blogspot.com/

Lead rises in London as stockpile drops

Lead rose in London on speculation a supply shortage will persist after the proportion of stockpiles reported as ready to be withdrawn jumped to the highest in more than two years.

The amount of metal booked to leave warehouses monitored by the London Metal Exchange climbed 50 percent to 6,775 metric tons. That's equal to 19 percent of the 35,325 tons of current inventories, the highest level since at least November 2005, according to data compiled by Bloomberg. Stocks may fall below 30,000 tons, said Michael Widmer, an analyst at Calyon, the investment banking unit of Credit Agricole SA.

``Stockpiles that low make people nervous, especially heading into the peak demand period ahead of winter,'' Widmer said today in a telephone interview from London. ``Prices should remain relatively well supported at these levels.''

Lead for delivery in three months on the LME gained $16, or 0.5 percent, to $3,110 a ton as of 11:52 a.m. in London. The metal used in car batteries fell 6.8 percent yesterday, the biggest one-day decline since February 2006. It traded at a record $3,500 on July 23 amid disruption to supply.

Demand increases ahead of the northern hemisphere winter as battery makers boost output to cope with replacements, Widmer said. LME-tracked inventories have dropped 19 percent in the past month.

Apex Silver Mines Ltd.'s San Cristobal mine in Bolivia and expansions to Australian mines operated by BHP Billiton Ltd., Teck Cominco Ltd. and Xstrata Plc will boost lead output by the end of 2007, David Thurtell, an analyst at BNP Paribas in London, said yesterday.

Deficit

Demand for lead will exceed supply for a fifth consecutive year in 2007, the Lisbon-based International Lead and Zinc Study Group said May 14.

In my view, Lead is going to be the star base metal in 2007.
Vested in Lead futures.

This is extraordinary, at first I thought I had mis-read/interpreted the article you posted Brend. I went straight to the base metals website which confirmed that cancelled warrants had risen to >6500t. Having only followed lead over the past 6 or so months cancelled warrants didn’t vary to greatly from the 1000t mark and felt that this was the only fundamental aspect of lead which was disappointing. Have to say this gives me greater confidence that lead will remain at these higher levels for longer than I had originally anticipated. Jumped on Kagara with some petty cash for the first time yesterday, so now have 2 solid stocks with exposure to Lead, pity however that both companies have 15-20% of annual lead production hedged at around the $1 mark. Anyway looks like Lead could well be the winner of the base metals in 2007, but I haven’t written off the underdog (zinc) just yet.

GREENS said:

This is extraordinary, at first I thought I had mis-read/interpreted the article you posted Brend. I went straight to the base metals website which confirmed that cancelled warrants had risen to >6500t. Having only followed lead over the past 6 or so months cancelled warrants didn’t vary to greatly from the 1000t mark and felt that this was the only fundamental aspect of lead which was disappointing. Have to say this gives me greater confidence that lead will remain at these higher levels for longer than I had originally anticipated. Jumped on Kagara with some petty cash for the first time yesterday, so now have 2 solid stocks with exposure to Lead, pity however that both companies have 15-20% of annual lead production hedged at around the $1 mark. Anyway looks like Lead could well be the winner of the base metals in 2007, but I haven’t written off the underdog (zinc) just yet.

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Thanks Greens. But I have to point out that rising metal price does not necessary equivalent to profitable mining products for the mining stocks. Cost of mining for lead is high compared to its price.

High margin mining metals are nickel, copper and zinc. Look out for mining stocks that mine those metal minerals will be good investments.

In my opinion, the best way to tap on rising lead price is to buy the futures contract. Currently there is 5450mt of Lead cancelled warrants in LME warehouse, hence expects more inventory drawdown in the near term.

Just my thoughts.

BREND said:

Thanks Greens. But I have to point out that rising metal price does not necessary equivalent to profitable mining products for the mining stocks. Cost of mining for lead is high compared to its price.

High margin mining metals are nickel, copper and zinc. Look out for mining stocks that mine those metal minerals will be good investments.

In my opinion, the best way to tap on rising lead price is to buy the futures contract. Currently there is 5450mt of Lead cancelled warrants in LME warehouse, hence expects more inventory drawdown in the near term.

Just my thoughts.

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Don’t worry Brend I didn’t purchase CBH and KZL for their lead production, But for their exposure to Zinc and to a lesser extent copper.

However given the recent surge in Lead prices, lead will definitely start to become more and more profitable for these companies but will still make up only a small proportion of earnings in comparison to their other bulk productions of Zinc and Copper (note: CBH has only just commissioned a copper circuit at its endeavor mine) . Agree that the best way to profit from rising lead is from trading in futures but just not my preferred type of investment vehicle.

Again Agree the outlook looks good at the moment, Im just not sure whether it will stabilise at or around these levels (which I’m quite happy if it does) or continue its upward trajectory (which would be even better). Any thoughts on this Brend?

In regards to nickel, have never really been a big fan even when it was going gangbusters, I have exposure to it through BHP, and since I purchased it around the $23 mark 1.5 years ago, have in some ways benefited from the higher nickel prices over that period, but for some unfound reason have stayed well away from the smaller concentrated producers SMY, MCR etc…

Greens

Hi Green,

Currently experts are separated into 2 different views on Lead.

First view is that current price of above $3,000 is unsustainable, more supply will be out by the end of this year. But so far nothing is confirmed by the mining companies yet. There is a possibility of production being disrupted due to environmental issues again. When Lead is trading at $1500 2 years back, many experts are also predicting that Lead price should fall, and look at where is the Lead price today?

Second view is that inventory level has been falling heavily in percentage terms. Backwardation has risen from less than 10 to 60 now, indicating tightness in physical market. High cost of Lead concentrates has resulted Lead refineries in China operating at a loss, hence they plan to cut production of refined Lead. Price may be volatile now, but strong fundamental will eventually push the price higher.

My view is with the 2nd one.

Chinese lead prices stay strong

Chinese lead prices have stayed strong this week despite lower world prices, as smelters and merchants cut sales of the metal to support prices, industry
sources said on Tuesday.

High Chinese prices are making exports unattractive and may further push down outflows following a nearly 50 percent decline in the first half of this year.

Lower exports from China, a major global lead supplier, could cushion world prices, the sources said.

"We did not release any metal on Monday. We are still on hold today," a trade manager at a large northern lead smelter said. "It is because we are expecting prices to rise," he said.

The benchmark three-month London Metal Exchange lead price has struggled at around $3,000 this week after dropping 6 percent last Friday when prices of the metal complex fell.

Lead stood at $2,990 on Tuesday, down 14.6 percent from a peak of $3,500 per tonne in July.

But prices in Shanghai have risen 250 yuan ($33) per tonne this week to 24,500-24,800 yuan on Tuesday.

Yuguang Gold and Lead, China's top lead producer, has been selling the metal at 25,500 yuan per tonne this week, a trader at the company in central Henan province said.

"People are still buying. We do not have any metal in stock," the trader said.

Smelters and traders in China were expecting prices of lead, which is mostly used in the battery sector, to rise further because many Chinese smelters have reduced production due to insufficient concentrate supply, industry sources said.

Chinese mines also maintained strong prices, at about 22,000 to 23,000 yuan a tonne of lead in concentrate, the material used to produce primary lead.

"Metal prices are only 2,000 to 2,500 yuan higher than concentrate prices. Many smelters do not want to produce metal," a sale manager at a smelter in Henan said.

He said smelters had failed to import more spot concentrate because they were seeking high processing fees.

"Smelters are asking for treatment charges of about $300 a tonne. But sellers' offers are at about $200," he said.

The charges are paid by sellers of lead concentrate to Chinese smelters, and then deducted from the sale price, based on world lead prices.

Industry sources said a few thousand tonnes of refined lead were sitting in warehouses in Shanghai because smelters and merchants did not want to sell.

"The issue is for the raw material. We are not worried about the sale of metal," the trade manager said.

He said smelters would be unwilling to sell at prices under 25,000 yuan per tonne due to the high cost of concentrate.

Consumption of lead in China has remained strong this year as battery production rises to feed the booming transport sector in the country and export, industry sources said.

Lead accounts for approximately 90 percent of the raw material in storage batteries in China, the dominant battery producer in the world, according to a weekly research report by Macquarie Bank.

Brend we will continue to get analyst’s saying metals have reached a peak over and over again, this has occurred in regular intervals over the years and metals prices always rebound to hit fresh highs time and time again. In regards to lead I tend to follow a similar view that as long as the fundamentals of lead remain in place, it’s a solid investment.

In regards to metals in general, personally until I see a slow down in Asian growth/development especially in countries such as China and India, I have no hesitation of the long run commodities boom. China for starters has so much money at hand it doesn’t no what to do with it; I don’t think the US sub prime will affect its thirst for infrastructure needs, especially with he Olympics coming up in 2008, China wants to make a statement to the world.

On the other hand India has only just begun development and once they get going imagine the extra demand (its similar to another China). Then eventually we have to have the devt of Africa, but when that will take place is anyone’s guess, they first need to learn how to run an economy and not fight among themselves. China and a relatively strong global economy in my mind will at least compensate for the US downturn in the short run. So when the US gets over this housing downturn we will again see very high demand for base metals, whether the extra supply coming on stream will be enough to compensate is anyone’s guess.

GREENS said:

Brend we will continue to get analyst’s saying metals have reached a peak over and over again, this has occurred in regular intervals over the years and metals prices always rebound to hit fresh highs time and time again. In regards to lead I tend to follow a similar view that as long as the fundamentals of lead remain in place, it’s a solid investment.

In regards to metals in general, personally until I see a slow down in Asian growth/development especially in countries such as China and India, I have no hesitation of the long run commodities boom. China for starters has so much money at hand it doesn’t no what to do with it; I don’t think the US sub prime will affect its thirst for infrastructure needs, especially with he Olympics coming up in 2008, China wants to make a statement to the world.

On the other hand India has only just begun development and once they get going imagine the extra demand (its similar to another China). Then eventually we have to have the devt of Africa, but when that will take place is anyone’s guess, they first need to learn how to run an economy and not fight among themselves. China and a relatively strong global economy in my mind will at least compensate for the US downturn in the short run. So when the US gets over this housing downturn we will again see very high demand for base metals, whether the extra supply coming on stream will be enough to compensate is anyone’s guess.

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Yes, fundamental for lead is very strong, lead price is rebounding.
I bought aluminum and cotton futures lately, I think both of these commodities had fallen too much, beyond their fundamental value.

BREND said:

Yes, fundamental for lead is very strong, lead price is rebounding.
I bought aluminum and cotton futures lately, I think both of these commodities had fallen too much, beyond their fundamental value.

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What about fundamentals of Zinc?

Thanks

MS

michael_selway said:

What about fundamentals of Zinc?

Thanks

MS

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Price should have reached a bottom, and going up...

Brend looks like your thoughts were right in regards to lead; I was of a similar view but abit more conservative as to when the uptrend would continue, seems like its powering on already. The Lead price has surged above that of Zinc, people would have laughed at you if you had said that a year ago…funny how things change. Not to long and well be hitting new highs the way things are going and there seems to be no let up as yet to the constant draw downs.

By the way what is the average cash cost per lb for lead or the profit margin? I know around the 70c mark the margins were nowhere near the size of other base metals, but since the latest rise surely these margins have to be fairly attractive now.

MS I think Zn will hopefully have its turn soon, inventories have to just fall to what buyers and hedge funds regard as critically low levels (in regards to lead this seemed to be the 50K mark), that is when the panic buying will come in to shore up scarce supplies and that’s when hedge fund capital will start rolling in. I was reading that Barclays like Zinc exposure at the moment, but how much you can believe what analysts say is up to you. Whether or not 50K is the critical level, well just have to wait and see, that is if inventories ever fall to that level…of which I am very hopeful.

GREENS said:

Brend looks like your thoughts were right in regards to lead; I was of a similar view but abit more conservative as to when the uptrend would continue, seems like its powering on already. The Lead price has surged above that of Zinc, people would have laughed at you if you had said that a year ago…funny how things change. Not to long and well be hitting new highs the way things are going and there seems to be no let up as yet to the constant draw downs.

By the way what is the average cash cost per lb for lead or the profit margin? I know around the 70c mark the margins were nowhere near the size of other base metals, but since the latest rise surely these margins have to be fairly attractive now.

MS I think Zn will hopefully have its turn soon, inventories have to just fall to what buyers and hedge funds regard as critically low levels (in regards to lead this seemed to be the 50K mark), that is when the panic buying will come in to shore up scarce supplies and that’s when hedge fund capital will start rolling in. I was reading that Barclays like Zinc exposure at the moment, but how much you can believe what analysts say is up to you. Whether or not 50K is the critical level, well just have to wait and see, that is if inventories ever fall to that level…of which I am very hopeful.

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Hi Greens, I'm used to people laughing at my views or trading ideas. But when the truth is out, they will know that they are laughing at themselves.

For example I told many of my friends to buy stocks last week, many did not heed my advise. If they had done so, they will be buying blue chip stocks at very cheap price.

I think lead price still has a long way up, maybe $4000/ton one day???

My opinion on stock market:
http://basemetal-trading.blogspot.com/2007/08/some-th.html

Hi Brend

I want to take your advice and buy some lead shares. Whos your pick to buy?

Thank you very much.

Robbase said:

Hi Brend

I want to take your advice and buy some lead shares. Whos your pick to buy?

Thank you very much.

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I thought I already wrote that lead companies are not very profitable.
Buy Lead futures, but too late now, a bit expensive at current price.

Currently I'm shorting copper.

BREND said:

I thought I already wrote that lead companies are not very profitable.
Buy Lead futures, but too late now, a bit expensive at current price.

Currently I'm shorting copper.

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Yep, but i think buyign zinc now while its low, might be a good investment?

thx

MS