02/05/2018

Lead price drivers

Which way next for lead?

Christine Meilton (CRU)

ILZSG Spring meeting, 25 April 2018

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Presentation outline

 Recent trends – lead driven to six year highs in 2017 and early 2018

 Demand outlook – key risks to lead’s steady consumption growth

 Supply outlook – primary v secondary production and prospects for new mine supply

 Summary and conclusions

Recent trends – what pushed lead to new six year highs?

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Lead prices have retreated from 6 year highs, but still holding on to 2016 gains
3,000 LME 3-month lead price, daily ($/tonne)

Previous high September 2011 - $2,546/t

2,500

$2,000/t
2,000

$1,500/t
1,500

1,000

Data: LME 5

Zinc surged ahead, lead closely tracked copper, weaker dollar played a part
240 LME 3-month prices/LBMA spot silver, daily, index to 4th January 2016 = 100
LME 3-month prices, $/t, US$/Euro
2,800 1.25
220
2,600
1.2 Zinc

200 1.15
2,400
1.1
180 2,200
1.05

2,000 1 Copper
160 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18

Lead
140

120
Silver
100

80
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

Data: LME 6

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Global refined lead market has moved into deficit, but stocks remain plentiful
Refined lead consumption/ Refined lead balance, Refined lead stocks,
5
12,500 production, world (‘000t) world (‘000t) 250
weeks’ consumption Implied unreported
200 Reported
12,000 4 Critical 2 weeks' level
150

11,500 100
3
50
11,000
0
2
10,500 -50

Balance (right axis) -100

1
10,000
Production (left axis)
-150
Consumption (left axis)
9,500 -200 0
2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018

Data: CRU. 7

Key drivers will be supportive of lead

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Mixed outlook for other LME metals, but lead specific drivers expected to be supportive
240 LME 3-month prices, spot price for Brent crude, 5 Global refined lead stocks,
index to 4th January 2016 = 100 weeks’ consumption

220
Implied unreported
4 Reported
200 Brent crude oil
Critical 2 weeks' level

180
3
Copper
160

2
140

120 Zinc
1
100

80 0
2016 2017 2018 2019 2020 2021 2022 2014 2016 2018 2020 2022

Data: CRU. 9

Demand – steady growth expected but EV threat hovers

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Lead demand intimately linked to growing dominance of lead-acid batteries

(LABs)
Refined lead consumption, world (‘000 tonnes)
14,000
Non-battery uses  LABs now account for ~85% of global
12,000 lead consumption (up from ~65% in 1990s).
Batteries - automotive &
industrial
10,000  Wide range of LAB uses – automotive
(~50-55% of demand) and industrial (~33%
8,000 of demand).

6,000  Small but resilient rump of non-battery

uses (~10-15% of demand).
4,000

2,000

0
2000 2005 2010 2015 2020

Data: CRU. 11

Positive outlook for vehicle production and ownership

CAGRs for car and CV production and car ownership, 2017-22
12%

Car and CV production

10%
Car populations

8%

6%

4%

2%

0%
N America C & S America W. Europe E. Europe Asia & Australasia… China World

Data: CRU, OE, LMC Automotive 12

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Conventional (ICE*) share of new vehicles produced slips below 90% in early
2020s as ‘new technology’ (non-ICE**) vehicle share steps up
150 Light vehicle production by powertrain, world (million units) % shown are ‘Non-ICE’ as % of total

12% 14% 15%

6% 9%
3% 4%
100 3% 3%

50

Non-ICE**
ICE*
0
2014 2015 2016 2017 2018 2019 2020 2021 2022
*ICE = Internal Combustion Engine vehicle, includes ‘stop-start’ vehicles **Non-ICE = fuller HEVs, BEVs and Fuel Cell ‘new technology ‘vehicles

Data: LMC Automotive (January 2018) 13

‘Stop-start’ micro HEVs rise to account for nearly 50% of all new ICE* vehicles
produced in the world in early 2020s
‘Stop-start’ light vehicles as % of ICE* light vehicle production, global (large chart) and regional (small chart)
100% 100
90% 90
80% 80
W. Europe
70% 70
60% 60
50% 50 USA
40% 46% 49% 49%
43% 40
40%
30% 36% 30
31%
20% 27% 20 China
23%
10% 10
0% 0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2014 2016 2018 2020 2022
*ICE = Internal Combustion Engine vehicle, includes ‘stop-start’ vehicles

Data: LMC Automotive (January 2018) 14

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Future of LABs, key points

 EVs making inroads into new car market and sales are growing very rapidly. LMC forecasts annual
growth of 35% in EV production.

 But this is from a very small base and will not eat into overall LAB market in next five years

 Still many obstacles to be overcome: range of EVs, charging infrastructure, cost, recycling etc

 LIBs are also making inroads in industrial LAB sector and now account for the majority share of new
investment in storage capacity in the USA

 But there is still a large potential for LABs in power storage. Renewable energy will require
substantial increase in power storage capacity.

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Supply – primary v secondary

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Secondary production far more important in lead than other non-ferrous metals
Secondary and primary production as % of total, world - 2017
100%
90%
80%
70% 62%
Primary
60%
50% Secondary
40%
30%
15% 11%
20%
10%
0%
Lead Copper Zinc
Data: CRU. 17

‘Closed loop’ ensures lead recycling keeps growing along with consumption,
but primary requirement is also increasing
14,000 Refined lead consumption/production, world (‘000 tonnes)
13,000
12,000
11,000
2022 = 5.1Mt
10,000
Primary 2017 = 4.5Mt
9,000
8,000 requirement
7,000
6,000
5,000
4,000
Secondary lead output
3,000
2,000
1,000 Lead demand
0
2000 2005 2010 2015 2020
Data: CRU. 18

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Mine supply has fallen short of requirements and TCs have plummeted
3,000 Domestic spot TC*, Imported spot TC*, 250 175 Global concentrates balance, ‘000t lead
(RMB/tonne) (US$/tonne)
Low silver benchmark* 200 125
($/t)
2,500
150 75

2,000 Import Spot TC 100

(RHS)
25

50 -25
Domestic Spot TC (LHS)
1,500
0 -75

1,000 -50 -125

2013 2014 2015 2016 2017

Data:CRU. * For clean lead concentrate - grading 60% lead, 400g/t silver 19

Most “mixed feed” plants maintained output levels by increasing their use of
secondary materials in 2017
Secondary feed as a % of total, 2016-17 Y-o-y change in ex-China refined
65% lead output, ‘000t

Total refined
55% 2016 lead output
2017
45%
Secondary
output
35%

25% Primary
output
15%

Data: ILZSG, CRU, Company reports, 20

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Mine supply outlook

Committed projects, reactivations and expansions could add some 200,000t

over the next five years
50
Total net changes from major committed projects, reactivations and expansions, 2017-2022, '000t lead
40

30 Net gain: 205,000t

20

10

-10

-20

* net change from ramp up of underground and closure of open pit

Data: CRU, company reports 22

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However, there are few major uncommitted lead projects on the horizon
Potential output from probable and possible projects in the next five years, ‘000t lead at full production
140

120 Probable projects

100 Possible projects

80

60

40

20

* Average for the first ten years of output – initial production will be higher due to mine sequencing
Data: CRU, company reports 23

Most committed new capacity will be commissioned in the next two years
350 Potential and forecast y-o-y changes in lead mine outpu Concentrates will move into surplus before deficit returns

300 50 Global concs balance, ‘000t lead

Potential change in output
250
25
200

150 0
100

50 -25
Concentrates will move
0
into deficit again as
-50 mine output growth
Forecast change in output
-50 slows sharply
2018 2019 2020 2021 2022
-75
Possible projects (potential) Probable projects (potential) 2017 2018 2019 2020 2021 2022
Firm projects (potential) Operating mines

Data: CRU 24

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Summary
 Lead prices have been driven to six year highs on the back of higher prices for all LME metals and a
weaker dollar, as well as supportive fundamentals.

 Lead demand is expected to maintain a steady growth, despite the threat of EVs.

 Recycling provides around 60% of lead supply, but the primary requirement will continue to grow.

 Secondary portion has increased in response to concentrate tightness, but potential for further
increases is limited.

 On the supply side the key price driver is the potential for primary supply to fill the gap between
secondary production and consumption

 Mine supply growth is dependent on new projects and expansions, but can the potential be
realised?

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Christine Meilton
T +44 (0)20 7903 2098
E christine.meilton@crugroup.com

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