🔋 Your Guide To Investing In Lead— A Metal Used Mainly In Conventional Car Batteries, Among Other Things

Brief Background

What Can It Do For You

💰 Profit. As you can see from the price chart below, lead has certainly went through a rollercoaster ride ever since the early 2000s, providing opportunities for speculation and profit. Generally, there are a number of trends that can act as support for lead prices. These include growing Chinese and emerging market demand, & variety in lead-acid battery applications. However, there are a number of risk factors that can put downward pressure on prices. These include substitution (namely lithium-ion batteries), oversupply due to secondary production (recycling), & a potential rise in lead poisoning cases.

Price chart of lead over the years.

What Affects Lead Prices

  • 🇨🇳 Chinese Production & Demand. Like with a number of other commodities, China is both the world’s biggest lead producer and consumer, accounting for about 42% of the world’s supply, according to the USGS. Any disruptions in supply or demand in this country can have an impact on prices. Additionally, as other emerging economies (like India) continue to urbanise & grow, demand from these countries could certainly contribute to lead prices.
  • 🏛️Government Policy. Things like subsidies, tariffs, restrictions, and trade policies can definitely have an impact on lead prices. For example, trade tensions between the US and China can disrupt lead supplies in the market.
  • 🔄 Substitution. Like many other metals, lead faces a number of substitutes. The more obvious substitute is the lithium-ion battery, which could certainly replace lead-acid batteries in vehicles. That being said, there are pros and cons to each type of battery. The main advantage that lead-acid batteries have over lithium-ion ones is its low cost. More information comparing both types can be found here.
  • 📈 Stock Levels. Lead stock levels can be a factor in moving lead prices as it can be a key indicator on supply and/or demand levels, which can then lead to speculation in the market. The LME (London Metals Exchange) monitors world lead inventory levels held in their warehouses and publishes data in their stock reports.
  • 🏷️ Production Costs. Input costs such as the cost of electricity, coal, and crude oil can have an impact on lead ore extraction and refining into various refined lead products. Furthermore, recycled scrap lead metal can also impact prices as it adds to supply in the market. According to the USGS, 1.1 million tons of secondary lead was produced in the US in 2020, most of which were recovered from lead-acid batteries. To put it into context, it amounted to roughly 73% of domestic consumption in the US.
World lead production & reserves, according to the USGS.
World refined lead supply & usage from 2016–2021, according to the ILZSG (International Lead & Zinc Study Group). Both metal production and usage have steadily been increasing over the years, until the pandemic affected all kinds of commodities, lead included.
Global exporters and importers of lead ore in 2019.

What Is It Used For?

  • 🔋 Batteries. The main use of lead is for lead-acid batteries used in vehicles. These batteries are also used in emergency back up power systems (like in hospitals), telecommunications systems, computer networks, etc. In fact, it’s because of the various lead-acid battery applications that allowed for lead to rebound and recover quite quickly as the world emerged from lockdown.
  • 🎨 Pigments. Lead has been used quite extensively in paints, though it has been reduced due to health hazards associated to it.
  • 🏗️ Rolled Extrusions. Rolled extrusion is just a fancy term for describing lead sheets. These are used mainly in the industrial sector, like the building industry for roofing & cladding to prevent water penetration, acid plants, storage vessels, and as radiation shielding to protect workers from radiation exposure. Think medical and nuclear power plant workers.
  • 🔫 Ammunition. Lead bullets are commonly used due to the physical properties and the cost of the metal.
  • 🏭 Alloys. Like other base metals, lead can be combined with other metals to enhance and improve certain properties.
  • 🔌 Cable Sheathing. Due to lead’s properties, lead alloys are commonly used as a sheathing material for cables, serving as protection.
End uses of lead over the last five years, according to the International Lead & Zinc Study Group (ILZSG).

The Case Against Lead

Secondly, since lead can be recycled as scrap metal, known as secondary production. As new metal enters the supply side of the market, and as products reach the end of their life cycle, more and more lead can be retrieved and re-entered into the market, increasing supply and potentially putting downward pressure on prices.

Lastly, with an increasing population, supply, and demand for lead, there is a risk of an increase in lead poisoning cases. Should this be the case, then more regulatory policies could be passed to further limit the use of lead in consumer & industrial products to minimise direct exposure to the metal. This could result in decreasing demand.

The Case For Lead

Firstly, like other commodities, lead can serve as a portfolio diversification tool & a hedge against inflation. Overall, the main long term trends that can act as support for lead prices include: growing Chinese and emerging market demand, and variety in lead-acid battery applications.

As mentioned above, the main use case for lead is the lead-acid battery. Although the primary use for the battery is in vehicles, it’s also used in a number of essential sectors, which is why lead prices have been able to healthily rebound quite quickly from the pandemic. For example, trucks and vans were still needed to transport supplies to and from hospitals and supermarkets, emergency vehicles were still operating, and backup batteries were still needed at hospitals, data centres, telecommunications systems, and many others. This variety of essential sectors that require lead-acid batteries means demand won’t easily go away anytime soon.

As China and other emerging economies continue to grow, urbanise and industrialise to improve and upgrade their infrastructure (as mentioned in the above paragraph), demand for lead could certainly grow as well.

Popular Ways To Invest In Lead — Pros/Cons of Each

  • Physical Lead (Bullion Bars). You can buy and directly hold physical lead bullion bars. There’s no doubt to the ownership of these assets, and is reliable. However, you may want to consider storing in a secure storage facility rather than at home. Further, you may be faced with several fees — the cost to convert raw lead ore into finished bars tends to be passed on to you, as well as commission fees for the broker acting as the middleman. Selling it may also prove to be an issue as the broker may buy it back at below market prices. Be sure to find reputable sellers for a greater degree of transparency in the sales process.
  • Lead ETFs. There are lead ETNs that tracks lead price movements through lead futures contracts, which means you will have direct exposure to lead prices. Nevertheless, these ETNs are traded on stock exchanges, so they’re very easy to buy and sell. However, there are no assurances that you actually own the physical metal. You also probably won’t be able to take delivery of your lead. Depending on which broker you go with, you may be charged with trading commissions. ETNs also charge an expense ratio, or management fee that gets taken out of their total holdings and is then reflected on your account. Whichever ETN you choose, be aware of the fine print — the risks and costs.
  • Lead Stocks. These are shares of companies that have exposure to lead prices, though it won’t be just lead. As such, they don’t necessarily follow the price of lead there are other factors that need to be taken into account, such as exposure to other metals, not just lead. Because of all this, you’re exposed to a greater number of risks involving company profitability, exposure to price movements of other metals, etc. There are no fees, apart from trading commissions depending on your broker. You may want to consider looking at the company’s annual reports (especially operational costs), portfolio of what mines they have, the other metals they produce, and potential expansion plans.
  • Lead Futures Contracts. A binding agreement traded on futures exchanges between two parties where they agree to buy/sell lead at a specified time in the future with an agreed-upon price. The London Metals Exchange (LME) offers these contracts, each representing 25 tonnes of lead. These futures contracts are physically settled after the contracts have expired. Because you are using a significant amount of borrowed money, even small price changes in lead can either lead to massive profit, or massive losses beyond what you paid for, potentially leaving you in massive debt. They are certainly high-risk and not recommended for beginners. Further, fees associated with futures trading include broker commissions, and exchange/clearing fees.

TL;DR — Is It The Right Investment For You?

🧺 If you are considering adding lead to your existing portfolio or bundling it with a number of others, you may want to consider doing dollar-cost averaging (regular investments over time) to build your lead position so you can take advantage of any volatility in the market.

💰 If you are considering adding lead for speculation and profit, you may want to monitor the factors that affect lead prices mentioned above. You may also want to keep track of the annual lead publications provided by the USGS, as well as LME’s lead stock reports, to identify supply and demand levels, along with other bits of information they provide. In addition to monitoring the factors mentioned above, you may also want to consider performing some technical analysis on lead’s price chart to help consolidate trends and patterns to help with your decision. That being said, its price can also swing unexpectedly and dramatically, so be prepared and have an exit plan in place.

As always, if you are unsure, check in with a professional financial advisor before making any moves.

Thank you for reading! Let us know if you found this helpful. You can connect with us @VNewsletters, or check out our website for more information @ vaultcomms.com.

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