Neil Hawkes (CRU)

20th ILC, Crowne Plaza, Berlin, Germany

(29th June 2017)

Global market outlook for lead - understanding the

main lead price drivers

First or last step up in lead price revival ?

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$2,500/t

$2,000/t

Data: LME

LME 3-month lead price, daily ($/tonne)

After 2H2016 rally, lead price slipping, but still in low $2,000s

$1,700/t

• Combination of broader metal price drivers and lead-specific price drivers turning more positive over last

year or so

• Broader drivers - stronger US dollar trend starting to stall, Chinese slowdown levelling out, tightening

supply picture across metals

What has been driving uptick in lead price ?

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Nickel

LME 3-months prices, index to 4th January 2016 = 100

Copper

Zinc

All LME metal prices lifting through 2016-2017, but zinc running

ahead of the chasing pack

AluminiumLead

Tin

Data: LME

• Combination of broader metal price drivers and lead-specific price drivers turning more positive over last

year or so

• Broader drivers - stronger US dollar trend starting to stall, Chinese slowdown levelling out, tightening

supply picture across metals

• Lead-specific drivers - steady (if not spectacular) global demand growth, tighter global primary

(mine) lead availability, tighter picture inside China (2H2016), tightening outlook outside China

What has been driving uptick in lead price ?

What’s the lead demand picture ?

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China

Refined lead consumption, world (‘000 tonnes)

Chinese 2000s lead demand boom over…

Data: CRU

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

OtherEuropeRest of AmericasUSARest of AsiaChina

Refined lead consumption, world (‘000 tonnes)

…but slower Chinese growth to still play key role keeping global

lead demand on upward path in 2010s...

Data: CRU

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Non-battery uses

Batteries - automotive & industrial

Refined lead consumption, world (‘000 tonnes)

...and that upward path intimately linked to lead-acid batteries

Data: CRU

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2013 2014 2015 2016 2017 2018 2019 2020

Non-ICE**

ICE*

Light vehicle production by powertrain, world (million units)

*ICE = Internal Combustion Engine vehicle, includes ‘stop-start’ vehicles

**Non-ICE = HEVs, EVs and Fuel Cell ‘new technology ‘vehicles.

Majority of new vehicles are ‘conventional’ (ICE) rather than ‘new

technology’ (non-ICE), though latter’s share is rising

2.3% 2.7% 2.8%3.7% 6.2% 7.6% 8.8%% shown are ‘Non-ICE’ as % of total

4.7%

Data: LMC Automotive

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2013 2014 2015 2016 2017 2018 2019 2020

Excluding stop-start

Including stop-start

32%

18%22% 26%

36% 39% 42%

‘Stop-start’ vehicles as % of ICE* vehicle production, global

‘Stop-start’ vehicles rising to account for over 40% of all new

vehicles produced globally in 2020

29%

Data: LMC Automotive Note: *ICE = Internal Combustion-Engine vehicle

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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Steadier ‘normal’ global lead demand growth in 2010s compared

to earlier Chinese-boom fuelled yearsRefined lead consumption, world (‘000 tonnes) % year-on-year change

2.4% per year (1960-2016)

Data: CRU

What’s the lead production picture ?

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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

More varied, but more ‘normal’ global lead production growth in

2010s compared to earlier Chinese-boom fuelled yearsRefined lead production, world (‘000 tonnes) % year-on-year change

2.3% per year (1960-2016)

Data: CRU

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Year-on-year change - secondary (RHS)

Year-on-year change - primary (RHS)

Total - primary (LHS)

Total - secondary (LHS)

Global secondary production typically bigger growth in contrast to

more erratic global primary pictureRefined lead production, world (‘000 tonnes) year-on-year change (‘000t lead)

Data: CRU

• Before the recent lift in metal prices, lower earlier values prompted lead-producing polymetallic mine cuts (led by

Glencore), alongside well-flagged ‘running out of ore’ mine cuts (e.g. Century)

• 2016 marked another drop in global mine output (led by Australia), alongside recovery in primary smelter demand

(led by Korea Zinc) resulting in a marked tightening in global lead concentrate availability

• So long-standing scramble for scrap has been joined by harder fight for lead concentrate

• Now waiting for response of polymetallic mines to higher metal prices and lower TCs, including reversal of price-

related mine cuts

• Having drained excess feed, primary smelter production path to more closely follow ‘fresh’ mine production this

year and beyond

• Unlike in other metals, impact of more variable primary production path will be diluted by the importance of

secondary supplies that will continue to follow a steadier path

Slower primary supplies diluted in lead by importance of rising

secondary supplies

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Lead Copper Zinc

Primary

Secondary

10%17%

Secondary and primary production as % of total, world - 2016

Secondary production far more important in lead

Data: CRU

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• Further steady growth in lead demand to ensure further steady growth in scrap supplies

• Alongside high recycling rates and sufficient smelter capacity, secondary lead production to remain the main

driver of global supply growth

• Main issue in secondary lead industry remains one of the ongoing fight for scrap share

• European lead recycling still dominated by large number of players along the supply chain

• Still too many smelters chasing the scrap pool available around the world (including Europe) inevitably leads to

higher scrap prices and flows, both within regions and between regions

Secondary lead industry trends and issues

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Scrap % of LME (RHS)

Battery scrap price (LHS)

LME lead price (LHS)

German scrap price notably higher since mid-2000s

%

Data: LME, CRU Note: Battery scrap price for whole undrained units , Germany 2017 is 1H2017 only

€/t lead

What’s the supply/demand balance picture ?

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Balance (RHS)

Production

Consumption

Refined lead balance, world (‘000t)

Pulling demand and supply together, global lead surplus

shrinks before moving into deficit

Refined lead consumption/production, world (‘000t)

Data: CRU

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Balance outside China

Balance inside China

This year, world outside China joining already tighter lead market

inside China, most of early 2010s surplus ‘ex-China’

Refined lead – market balance (‘000 tonnes)

Data: CRU

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1Q2017

Reported

Implied unreported*

Refined lead stocks, world year-on-year change (‘000 tonnes, year-end)

Smaller stock ‘iceberg’ already ‘shrinking’?

* Derived from difference between change in reported stocks and market balance

Data: CRU, ILZSG, LME, SHFE

What path lies ahead for lead prices ?

• More geopolitical events could blow metals off course - 2017 European elections, ‘Brexit’ process, less

conventional USA, more assertive Russia, Middle East war/tensions, maverick North Korea, more ‘surprises’ ...

• ...slower world economic growth means slower metals demand growth

• Underestimating rising threat to LAB dominance from alternative battery chemistries, notably LIBs on vehicle

electrification path

• Higher metal prices (lower TCs) trigger swifter/greater polymetallic mine response than expected

• January 2017 removal of Chinese 10% export tax had been successful tool in slowing Chinese lead exports to a

trickle - could they lift again ?

• Less tight lead market (weaker demand/better supplies) and renewed investor caution could see LME lead price

struggle to sustain further steps higher

• Even struggle to hold recent gains back up into low $2,000s - instead falls back into previous high $1,000s

trading

Downside risks lurking…

• Room for reasonably robust lead demand growth, helped by LAB usage in ‘stop-start’ vehicles

• Tighter raw material feed (concentrates joining scrap) restraining smelter production growth. Future growth path

less certain for primary than secondary - mine project pipeline typically zinc-rich and lead-poor

• Not just uncertain size of lead stock ‘iceberg’ - composition (‘use-ability’) and rate of release into the market will be

key in determining lead price path ahead

• More favourable ‘external’ drivers - bullish outlook for other LME-traded metals, notably zinc; US dollar rally running

out of steam; orderly transition to slower Chinese growth path

• Lead price already taken a step up into low $2,000s from high $1,000s - ‘see-sawing’ sideways this year as market

tries to work out ‘real v fake’ improvements in underlying lead market dynamics and broader metal price drivers

• November 2016 high in $2,500s provides first upside target - next is 2011 high of around $2,850/t

…but upside still beckoning

Time for reflection and any questions...now or later

Neil Hawkes

Lead market analyst (CRU)

T +44 20 7903 2101

E neil.hawkes@crugroup.com

W www.crugroup.com

20th ILC, Crowne Plaza, Berlin, Germany (29th June 2017)