LEAD

Expanding portfolio and customer base

Overview

FY 2022-23 started positively for all base metals. Lead prices that were positioned at US$ 2,447/t on April 1, 2022, touched US$ 2,471/t, in mid-April – the highest ever in 12 months. However, volatility caused the price to decline to US$ 1,754/t on September 27, 2022 – the lowest ever in 23 months. Some of the major reasons for this ~23% drop – since the beginning of FY 2022-23 to the end of the first half of FY 2022-23 – included the strengthening of the US dollar, increase in energy costs supported by global interest rates, the deepening supply crisis due to the Russia Ukraine conflict and the resultant overall pessimism for base metals demand. Lead prices in Q3 FY 2022-23 opened at US$ 1,865/t and had reached US$ 2,335/t by the end of December 2022, with some fluctuations. Prices have been positively impacted by the relaxation of COVID restrictions in China, and the slowdown in US inflation. Q4 FY 2022-23 opened at US$ 2,208/t and fell to US$ 2,115/t by March 2023 with a few ups and downs in between.

Global Demand

According to WoodMac, the global lead market, including primary and secondary markets, witnessed y-o-y demand growth of 2.0% to 13.5 Mt in CY 2022, compared to 4.3% y-o-y growth in CY 2021. Demand is expected to go up by 2.4% in CY 2023, with China starting to ease its COVID restrictions. Lead inventories in LME warehouses remained at historically low levels of 26 kt, with a ~35% drop since the start of FY 2022-23. The total tonnage of refined lead in SHFE warehouses fell by ~60% to 35 kt from April 2022 to the end of March 2023.

Indian Demand and Opportunity

The domestic consumption of refined lead has seen a growth of 9.4%, to reach 1.2 Mt in CY 2022 as against CY 2021 and is further expected to grow by 5.6% in CY 2023. India’s refined lead production went up from 1.1 Mt in CY 2021 to 1.17 Mt in CY 2022, of which 0.22 Mt was primary mined lead and 0.95 Mt was secondary, which is recovered from used objects. The country is expected to produce 1.24 Mt of lead, primary and secondary, in CY 2023.

Increasing urbanisation and industrialisation in developing countries, along with automotive consumption, are the key drivers of future lead demand. In the domestic market, we have witnessed strong demand for lead, largely on the back of excellent automotive demand, which is reflected in the passenger vehicle and two-wheeler numbers. The demand in the industrial battery segment has been robust, as battery replacements in data centres, banks, ATMs and other critical applications, have gathered pace. The CAGR for data centres is 12% till 2026, as India will have 500 million users by 2027, leading to increase in individual data usage. The adoption rate for electric vehicles (EVs) is slower than expected, causing very slow development of charging infrastructure, leading to higher Li-ion battery usage. It is estimated that the warehouse floor area will grow by 165% from 2022 to 2026, giving a boost to the demand for automotive batteries used in forklift trucks.

Apart from automotive, the industrial battery segment, catering to data centres, financial institutions and telecom, continues to witness strong growth in line with the digitalisation surge in the country.

Business Overview

India’s refined lead market, including both primary and secondary markets, is about 1.2 Mt. The demand in the primary lead market is approximately 220 kt in size. Hindustan Zinc is one of the leading lead producers in India, with a market share of 88% in the primary market during FY 2022-23. We produce lead ingots with 99.99% purity, which are registered with LME. In FY 2022-23, 88% of our production was consumed by the domestic market, and the rest was exported. We are expecting to increase our sales mix to 100% in the domestic market through new customer acquisition and application development.

Source: Wood Mackenzie - Short-term Outlook, June 2023