Lead in China: Now and in the Future Claire Hassall CHR Metals 6 th World Lead Conference Sofia, March 27 th 2014
Key drivers of Chinese lead demand Almost 50% of global lead consumption is now in China totalling 5.64Mt in 2013 Consumption in 2013 almost 7x greater than in 2000 Annual average growth rate of 16% since 2000 Batteries for two and three-wheel e-bikes are the largest end use Automotive batteries less than 30% of total China s lead consumption unlike any other country! Slide 2
Two-wheel e-bikes E-bike sales rose 13% in 2012 but likely to have slowed in 2013 Increasing sales to replace older e-bikes, but first-time buyers still important for the market E-bike fleet estimated to be 170M at end-2013 and still rising slowly Many e-bikes still exceed official standards set in 1999 for weight and speed Proposal to set new standards more in line with current specifications Lead use in 2-wheel e-bike batteries 1.7Mt in 2013 Slide 3
Three-wheel e-bikes There is little formal data on production and sales of 3-wheel e- bikes It is obvious that the market has grown fast, especially in smaller towns and cities CHR estimates production of over 4M units a year with a fleet now approaching 20M This may be conservative 3-wheel e-bikes are used for local deliveries and as taxis in small towns Battery capacities vary with intended use; two or more battery packs may be needed for all-day use Lead use in 3-wheel e-bike batteries 0.8Mt in 2013 Slide 4
Conventional vehicles Chinese market for SLI batteries is large and growing fast China sold 18M light vehicles and 4M commercial vehicles in 2013 Annual sales growth of almost 14% overall in 2013 Conventional vehicle fleet now 126M, up from 109M in 2012 Fleet has grown at annual average 17% since 2000 China will have more than 100 vehicles/1000 people this year Slide 5
China s other uses for lead Lead use in SLI batteries for domestic market 1.55Mt in 2013 Battery exports account for 0.36Mt lead Limited growth in last two years due to competition from Korea and Vietnam Other industrial uses benefitting from investment in mobile network Renewable energy storage seen as growth market Other industrial batteries 0.64Mt lead in 2013 All other uses estimated to be 0.56Mt in 2013 Slide 6
Outlook for consumption Lead demand will continue to grow in China, but at a slowing pace Towards end of current decade annual growth rates are forecast to slow to 2% per annum Market for two-wheel e-bikes may be close to saturation more cars, better public transport Three-wheel e-bike market still growing strongly Conventional vehicle sales growth to slow to average 5% per annum rather than average 18% since 2005 Export markets for batteries facing increasing competition, growth prospects poor Slide 7
China s lead supply CHR Metals estimates lead demand in China from the bottom up rather than calculating apparent consumption Official supply data (mine and smelter) is inaccurate, inconsistent and incomplete CHR Metals estimates that lead (and zinc) mine supply is significantly lower than reported Official data for primary refined is also too high A report prepared by Antaike in 2013 for ILZSG acknowledged problems with mine data in certain provinces but official data largely unchanged Slide 8
Secondary lead recovery in China is higher than reported Unless significant stockpiles of battery scrap accumulate, lead recycling should follow the same trend as demand With rapid growth in demand, secondary output will lag consumption Very slow growth in official secondary output data since 2009 is impossible to explain especially given rapid demand growth in earlier years, mainly in batteries There is no shortage of recycling capacity in China and all evidence points to all batteries being recycled Slide 9
Developments in China s secondary lead industry Battery scrap is expensive gross margins appear to be around $200/t refined lead for secondary smelters, although probably higher with VAT concessions High price of scrap reflects significant over-capacity in the industry and high demand from informal sector Several major primary lead producers have battery recycling plants most operate at low capacity, if at all! Discussions are taking place to subsidise battery recyclers operating in the formal sector Notwithstanding earlier campaigns, battery recycling still poses huge environmental problems Major issue is trade in dry batteries Slide 10
Near-term outlook for primary lead production Latest ILZSG data show a 12% increase in primary lead production in 2013; CNIA data +4.5% Both estimates higher than CHR Metals estimate, in terms of % growth and absolute tonnage Capacity far exceeds output overall smelter utilisation little better than 60% 2012 and 2013 characterised by fewer new/ expansion projects being commissioned, project delays and outright project cancellations Reflects very poor smelter economics but perhaps recognition that China needs no more smelters Slide 11
Concentrate imports China a large-scale and consistent importer of lead concentrates Imports often more expensive than domestic feed quality, financing, pricing Little change in volume of concentrate imports expected Sharp rise in silver concentrate imports in recent years but much is not silver concentrate Significant imports of various residues with silver values Higher impurities permitted in silver concentrates Slide 12
To sum up Much of future growth in Chinese lead production will come from secondary industry Little requirement for increased primary production Concentrate imports should not increase Chinese refined lead market now close to balance although inventories from earlier surpluses remain Provided that there is no change in export tax regime, China to have little influence on markets ex-china for refined lead Slide 13
In-depth analysis of the global lead and zinc industries Regular market commentary and detailed forecasts Confidential market research assignments Focus on Chinese lead and zinc industry developments CHR Metals Limited Godalming, Surrey United Kingdom Tel: +44 1483 423868 huw.roberts@chrmetals.com Slide 14 CHR Metals Ltd Xi an Representative Office Yulang International Room 11321 No 77 Jiefang Road, Xincheng District Xi an, Shaanxi 710004, PR China Tel: 029 87432148 Fax: 029 87432148 14