- Why is Lead Valuable?
- How is Lead Produced?
- Top 10 Lead Producing Countries
- Which Countries Have the Most Lead
- 4 Main Uses of Lead
- What Drives the Price of Lead?
- 3 Reasons You Might Invest in Lead
- Should I Invest in Lead?
- Expert Opinions on Lead
- How Can I Invest in Lead?
- Lead Trading & Investing Methods Compared
- Top Lead ETFs by Assets Under Management
Why is Lead Valuable?
Lead is a soft, dense metal with a low melting point. It is an important component in battery production. In addition, its high density and resistance to corrosion make it useful in industries ranging from piping to X-rays.
The history of lead as a component in producing goods traces back to the ancient Egyptians. The early civilization used the metal in pottery glazes, soldering components, paints and piping. They even cast ornamental objects out of lead. By the 15th century, lead was used as a roofing material for cathedrals and in stained-glass windows.
By the late 1800s, lead-acid storage battery production began.
Today lead production is a huge global business. Modern mines produce more than 4.7 million metric tons of the metal annually, while recyclers produce another roughly 6 million metric tons.
How is Lead Produced?
There are two methods for producing lead: primary production (mining) and secondary production (recycling). Each method individually accounts for about half of total overall production.
Primary production of lead involves extracting the metal from ores found deep in underground mines. More than 60 minerals contain lead, but only three contain enough to be considered commercially viable:
1. Galena: This mineral is the most common one extracted for lead production. In its purest form, it contains only lead and sulfur.
However, most galena contains other trace metals including:
2. Cerussite: a mineral known as white lead
3. Anglesite: a crystalline mineral that occurs when galena oxidizes
More than 95% of lead is extracted from one of these three minerals. However, ores containing these minerals usually contain significant deposits of other valuable metals such as silver and zinc. As a result, lead production usually occurs as a byproduct of silver or zinc mining.
The process of primary production involves three steps:
- Ore concentration
Lead and zinc ores usually occur together, and they often contain other valuable metals such as gold, silver and copper. The first step, then, is to isolate the lead in the ores.
A series of stages called froth flotation breaks down the ores into particles with greater concentrations of lead ore. First, the ore is ground with water into fine sand particles.
The resulting particles are then further diluted with water and chemical detergents and mixed in a series of tanks. The tanks agitate the mixture, and the lead and zinc particles float to the top, while clay and other silicates sink to the bottom.
These particles get skimmed off the top, where they are further concentrated. A chemical agent called a depressant is added to a tank with the lead and zinc particles. This causes most of the zinc ore to sink to the bottom and the lead ore to float to the top.
The lead ore then gets skimmed off. (Additional chemicals, such as copper sulfate, allow the zinc ores to be skimmed off later in the process.)
At this stage, the lead particles skimmed contain between 40 to 80% lead. The remaining concentration contains other particles such as silver, sulfur or zinc. The particles are now ready to be heated in smelters.
To remove the sulfur and other impurities, the lead particles are mixed with other materials including lime and sandstone. The resulting mixture is spread on a moving grate and heated by air that reaches temperatures of 2,550 degrees Fahrenheit.
This roasting process produces a brittle material called sinter, which is mostly lead oxide, but also contains zinc, iron and silicon oxides. The sulfur in the concentrate burns away in the form of sulfur dioxide gas.
The sinter is then broken into lumps and loaded into a blast furnace with coke fuel. The coke burns at temperatures of 2,200 degrees Fahrenheit and produces molten lead.
The molten lead produces base lead bullion that is 95 – 99% pure. Further refining in drossing kettles removes additional impurities. In order to be commercially viable, lead must be 99 – 99.999% pure.
After the impurities have been removed and the lead has been cooled, it is cast into blocks that may weigh as much as a ton.
Some refining plants produce lead alloys for specific industrial purposes. For example, adding antimony produces an alloy that is stronger than pure lead.This makes the product suitable for pipes, sheet, cable sheathing and ammunition.
Secondary production of lead involves recycling items such as batteries.Cable coverings, pipes, sheets and other metals can also be recycled for lead. Recycling lead is simple and accounts for half of all lead production. In Europe and the United States, the recycling rate of lead from batteries is 99%.
Smelters separate the components of batteries such as the lead, paste, plastics and electrolytes (acid). The lead particles are processed in blast furnaces where they are refined for use in new batteries. Lead obtained from recycling is equal in quality and purity to lead obtained from mining.
China is by far the leading country for lead mine production. It accounts for about half of all output, which is more than five times the next largest producer, Australia.
Top 10 Lead Producing Countries
|Rank||Flag||Region||World Mine Production (Thousand Metric Tons)|
|#3||United States of America||335,000|
These are the reserves of each country as reported by the United States Geological Survey (USGS):
Which Countries Have the Most Lead
|Rank||Flag||Country||Thousands of Metric Tons|
Lead is ductile, dense and has a low melting point. It also corrosion-resistant and can absorb radiation well. As a result, many industries rely on lead for their products.
4 Main Uses of Lead
|Uses of Lead||Description|
|Batteries||The chemical properties of lead make it a mainstay in batteries and storage technologies for renewable energy sources.|
|Protective Shielding||Lead effectively absorbs electromagnetic radiation, so it is vital in creating shields around particle accelerators, X-rays equipment, nuclear reactors and containers transporting radioactive material.|
|Ammunition||The physical properties of lead make it the ideal metal for manufacturing bullets.|
|Sheets and industrial parts||Industrial sheets constructed from lead dampen noise and vibrations.|
What Drives the Price of Lead?
The price of lead is driven mostly by these five factors:
- Chinese Demand
- Global Stocks
- Demand Outlook
- Competing Technologies
- Health Concerns
China uses over 40% of the annual global supply of lead and, therefore, is the biggest driver of its price. Strong growth in Chinese GDP over the past two decades had pushed many industrial commodity prices higher.
However, Chinese GDP has slowed down in recent years, creating doubts about future demand for all industrial metals including lead.
Ultimately, lead prices depend specifically on Chinese demand for batteries and power storage devices.
As industrialization and urbanization expands in China, the demand for power sources will grow, and this should boost lead prices. Traders should pay close attention to Chinese power consumption data for clues about lead prices.
The London Metals Exchange (LME) keeps track of global lead stock levels, and traders follow these statistics closely.
Movement in these stocks numbers could be a harbinger of supply shortages or gluts. Drops in global stocks often accompany price increases, while increases in stocks often signal an oversupply and lower prices.
An analysis of the lead market must focus on the battery industry, which accounts for about 85% of lead demand.
Government data from both emerging and developed economies suggests that demand for energy is expected to double in the next decade.
To meet this demand, China and India have started investing in smart grid technology. These investments have led to expanded use of lead-acid batteries in electric and hybrid vehicles.
Environmental concerns curtailed production of lead-acid batteries in 2011, but now production is on the upswing. New applications such as grid storage for renewable energy generation could fuel demand for lead-acid batteries.
If demand for these technologies continues to grow, the price of lead could move higher.
Lithium-ion batteries compete with lead-acid batteries as a power storage source, and many industry experts believe lithium-ion batteries could ultimately replace lead batteries in many automotive applications.
However, there are limitations to lithium-ion battery adoption. Lead-acid batteries work better in high power vehicles. In addition, lithium-ion batteries have historically been more expensive.
Traders should monitor this and other competitive threats to lead-acid batteries. If rapid improvements in lithium-ion batteries continue, then lead prices could suffer.
Numerous health studies have confirmed that chronic exposure to lead is toxic to humans. These studies have resulted in lead removal in products such as paints, gasoline and drinking water pipes. If more information becomes available about the health effects of lead exposure, consumers may switch to alternatives.
3 Reasons You Might Invest in Lead
Investors should consider buying lead for the following reasons:
- Bet on Automobile Demand
- Inflation and Weak US Dollar Hedge
- Portfolio Diversification
Bet on Automobile Demand
The automobile market is the most critical industry for lead-acid battery manufacturers.
Investing in lead could be a way to bet on surging demand for automobiles in emerging market countries such as China and India.
Similarly, the low interest rate environment in the United States and Europe should bode well for the automobile industry. Low rates mean affordable access to credit markets. Since most buyers finance automobile purchases, rates play an important role in determining demand. As long as rates remain near historically low levels, demand for cars and the batteries that go in them should remain strong.
Inflation and Weak US Dollar Hedge
Investing in lead is a way to bet on a weak US dollar and higher inflation.
Lead is priced in US dollars, so the performance of the American economy can impact its price. The US Federal Reserve Bank has kept interest rates low and the US dollar weak for many years.
US central bankers are likely to continue these policies to support consumer borrowing and spending. These conditions are likely to be very beneficial for lead prices.
A weak dollar could stoke inflation concerns.
There is a limited supply of lead, and supplies depend heavily on recycling batteries and other items. The price of the commodity would likely benefit from fears of inflation.
Most traders have the vast majority of their assets in stocks and bonds. Commodities such as lead provide traders with a way to diversify and reduce the overall risk of their portfolios.
Should I Invest in Lead?
Traders who want to invest in lead should consider purchasing the commodity along with a basket of other commodities that includes other base metals (i.e., copper, nickel and zinc), precious metals, agricultural commodities (i.e., dairy, meats and grains) and energy.
Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity. It also adds overall diversification to a stock and bond portfolio.
There are two specific trends that could raise lead prices in the years ahead:
- Chinese Demand
- Energy Prices
China is the top consumer of lead and is likely to increase its consumption in the years ahead. Industrialization and urban sprawl in China should fuel demand for power and storage devices. Lead should play an important role in meeting this demand.
Primary lead production requires large amounts of energy. Blast furnaces require coal and electricity. Mining facilities demand electricity and crude oil to operate. As the world consumes more energy, prices should rise in the coming decades. These rising costs should make lead more expensive.
However, traders should also consider the risks of investing in lead:
A global spike in interest rates or a global recession could depress automobile and battery demand.
Increased concerns about the health effects of lead exposure could dampen demand for the commodity and hasten the development of alternative technologies.
Global economic or political turmoil could strengthen the US dollar and weaken demand for commodities.
Expert Opinions on Lead
Experts are generally bullish about lead prices. Increased crackdowns on smog in China are leading authorities to scrutinize the lead industry. These actions have the potential to curtail supply in the world’s largest lead-producing country:
“We're hearing that there are a lot more inspections, monitoring and maybe some temporary shutdowns, generally constraints on lead producers.”
Robin Bhar, head of metals research at Societe Generale
Bhar notes that a combination of low inventories and growing demand could also help lift prices:
“We have a chunky deficit, a winter demand uptick, we've had a fairly cold snap in Europe that's boosting demand, and inventories are low within the whole lead supply chain.”
How Can I Invest in Lead?
Investors have a limited number of easy options for gaining exposure to lead prices:
Lead Trading & Investing Methods Compared
|Method of Investing||Complexity Rating (1 = easy, 5 = hard)||Storage Costs?||Security Costs?||Expiration Dates?||Management Costs?||Leverage?||Regulated Exchange?|
|Lead Mining Shares||2||N/A||N/A||N/A||N/A||N/A||N/A|
The LME trades a contract on ingots of lead that are 99.97% pure. Each contract represents 25 metric tons of lead and is quoted in dollars.
Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are physically settled by delivery.
Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
Lead Options on Futures
The LME offers an American style options contract on Lead Futures.
Options are also a derivative instrument that employs leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.
Options buyers pay a price known as a premium to purchase contracts.
An options bet succeeds only if the price of lead futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in lead futures to profit from their trades.
These financial instruments trade as shares on exchanges in the same way that stocks do. There are currently two exchange-traded funds (ETFs) that invest in lead futures:
Top Lead ETFs by Assets Under Management
|iPath Pure Beta Lead ETN||iPath Dow Jones-AIG Lead ETN|
Shares of Lead Companies
There are no public mining companies that are a pure-play investment in lead. Most lead production takes place as a byproduct of mining other metals such as zinc or silver.
One way to invest in lead is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of lead. The value of a CFD is the difference between the price of lead at the time of purchase and its current price.
Some regulated brokers worldwide offer CFDs on lead. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that traders can have exposure to lead prices without having to purchase shares, ETFs, futures or options.
- No commission on trades (other charges may apply)
- Free demo account
- Easy to use (mobile-friendly) platform
- Industry-leading risk management tools
- Trade hundreds of CFDs
- Your funds are safe – publicly listed company regulated by the UK's Financial Conduct Authority and Cyprus' Securities and Exchange Commission
Important: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail trader accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.