Lead Powering ahead? Click to edit Master title style Pb 2013 Prague June 2013 Helen Matthews Delivering commercial insight

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1 Lead Powering ahead? Click to edit Master title style Pb 2013 Prague June 2013 Helen Matthews

2 Agenda 1 Where is the market now? 2 Supply outlook 3 Demand outlook 4 Events to watch 5 Price outlook and conclusions Wood Mackenzie 2

3 Market uncertainty clouds outlook Lowest LME stocks for over two years Slow Chinese demand growth Smelter closures in US Upcoming replacement season Price spikes Warehouse movements What is driving the market fundamentals or investors? Wood Mackenzie 3

4 Stocks, Kt Pb Lead price $/t Stocks fall to two-year low Prices react accordingly or do they? LME stocks fell to equivalent of 7 days of consumption Over 80% of all warrants cancelled Effectively no lead left in US Cash price rises by 12% Small backwardation opens up LME stocks LME cash price LME 3M price Fair response or investor reaction? Source: Wood Mackenzie Wood Mackenzie 4

5 Supply issues make market nervous Europe: 4 nine lead shortage low LME stocks some market tightness US: 3 secondary closures in 6 months 2 more possible 1 primary closure to come no LME stocks market tightness Global: High prices and competition for scrap Ongoing environmental pressures Maintenance closures at 4 nine lead producers China: weak demand low conc imports barriers to refined exports market surplus Source: Wood Mackenzie Wood Mackenzie 5

6 % change yoy ROW refined growth to contract China will remain focus for primary and secondary growth 45 New capacity pushed out from 2012/ Where is the future ROW secondary growth? Chinese primary Chinese sec ROW primary ROW sec Source: Wood Mackenzie Wood Mackenzie 6

7 Kt Pb Global refined supply sufficient in the short term Requirement for additional supply increases going forward Oversupply Primary capability Secondary capability Demand Source: Wood Mackenzie Wood Mackenzie 7

8 % change year on year Future global lead demand growth reliant on developing economies ROW growth positive for now but will contract further out 15% 10% 5% 0% -5% -10% -15% Asia-China Europe Latin America North America Source: Wood Mackenzie Wood Mackenzie 8

9 Indexed growth (2005 = 1) Indexed growth (2005 = 1) Mature economies will see recovery-driven growth in the medium term Europe US 1.5 OE SLI Replacement SLI Industrial Other 2.0 OE SLI Replacement SLI Motive Stationary Other Source: Wood Mackenzie Wood Mackenzie 9

10 % change year on year Chinese demand growth slowing Ebike sector to remain key but market share will be eroded E bikes: Size restrictions, battery quality, competing technologies, population saturation Non battery: substitution This could mean: Lower concentrate imports ROW conc surplus & higher TCs 10 Higher battery exports 0 Global refined surpluses Lower LME prices Electric Bicycles Automobiles Industrial Non battery Source: Wood Mackenzie Wood Mackenzie 10

11 Millions of vehicles Global lead demand drivers remain strong Vehicle production growth to continue 3G penetration low Other Americas Europe Asia Number of subscribers (M) Penetration (%) USA Brazil India Japan China Italy Germany S Korea Spain France Indonesia UK 0 Source: OICA, Wood Mackenzie Source: Informa WCIS, MobiThinking Wood Mackenzie 11

12 Medium term global growth remains robust Growth driven by stationary batteries and replacement SLI Non battery <3% p.a. Motive <5% p.a. OE SLI <5% p.a. Stationary >6% p.a. Replacement >5% p.a. Source: Wood Mackenzie Wood Mackenzie 12

13 Events to watch ROW has aging smelter population & faces environmental challenges ROW Smelters Oldest: Port Pirie (Nyrstar) Australia, 1889 Newest: Primary -Dariba India, 2011 Secondary S. Carolina, Source: ILZSG, Wood Mackenzie Wood Mackenzie 13

14 Events to watch (2) ROW China Global Ongoing LME warehouse movements Opportunities from stop start vehicles Smelter pricing cost plus? Further E bike regulations Constraints to ebike growth in rural areas Duties on refined exports More consolidation in smelting and battery industries End use substitution Ongoing high prices and competition for battery scrap Investor influence Wood Mackenzie 14

15 Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Jul-11 Jan-13 20/08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/2011 Correlation between daily returns Correlation between daily returns Are investors starting to lose interest? Changes in metals prices were abnormally correlated with equity market indices but since the middle of last year the correlation has weakened LMEX-S&P LMEX-EMI LMEX-VIX LMEX-Au LMEX-Oil Source: Datastream, Wood Mackenzie Wood Mackenzie 15

16 Stocks, days of requirement Lead price $/t Higher prices but not for long! Supply side issues will keep prices buoyant in the medium term LME Stocks Producer stocks Consumer Stocks SHFE Stocks Implied stocks LME price Real LME price Nominal Source: Wood Mackenzie Wood Mackenzie 16

17 Supply, substitution and surpluses Summary and Conclusions Supply side concerns are causing regional imbalances. The rollout of stricter environmental regulations is a huge risk to the ROW industry The global demand outlook is positive but long-term growth will be restricted to the developing economies. Lead-acid batteries are potentially facing increasing substitution Medium-term raw material tightness will erode refined surpluses and could return the lead market to deficit. Higher prices should prevail but investors may be losing interest Wood Mackenzie 17

18 Wood Mackenzie Disclaimer This presentation has been prepared by Wood Mackenzie Limited for delivery at Pb 2013, Prague, Czech Republic, June It has not been prepared for the benefit of any particular attendee and may not be relied upon by any attendee or other third party. If, notwithstanding the foregoing, this presentation is relied upon by any person, Wood Mackenzie Limited does not accept, and disclaims, all liability for loss and damage suffered as a result. The information contained in these slides may be retained by attendees. However, these slides and the contents of this presentation may not be disclosed to any other person or published by any means without Wood Mackenzie Limited's prior written permission. Wood Mackenzie 18

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