Lead is one of the essential base metals with a low melting point, making it an important component in the production of batteries. It is a versatile metal, thanks to its high density, which makes it valuable in industries ranging from X-Rays to piping. However, this metal is not directly available on Earth – it exists as an ore called Galena.
But more than mining, lead is derived by recycling older lead products. Continue reading to find out how the lead is obtained, how it is priced, and how its rates are decided. We’ll also discuss why you should consider investing in this base metal.
How are Lead Rates Decided?
Lead prices are generally based on the prices at the London Metals Exchange (LME). LME is the world’s largest futures and forwards exchange based on base metals. It tracks metal prices, and at the same time, it manages the warehouses where the metals are held, waiting for release, should the investors ask for delivery.
Not just the lead, but LME benchmarks the prices of every base metal — the metal used in manufacturing industries, think copper, zinc, or lead.
However, the prices determined by the LME are the base prices. Meaning the producers also apply their own charges—like processing charges—to derive the metal from ore. It is then delivered as a usable metal to the buyers. To this base price, the producers also add the charges required to recycle the metal — if the metal is not being derived from the ore and is being recycled instead.
Lead is recycled from products like lead acid batteries, bullets from shooting ranges, medical equipment, and boat ballast, among others. In fact, lead acid batteries are one of the most recycled consumer products in the world. In the past few years, buyers have been moving away from virgin lead to recycled lead. This is why recycled material is one of the major driving forces in the market price of lead.
However, many raw material suppliers are moving away from pricing decided by the LME. They are either using daily market prices or other methods to decide the price of recycled lead. This is because the cost of recycling lead is often more than that reflected on the LME.
What are the Factors that Influence the Lead Price?
While business analysts say it is the supply-demand imbalance that influences the prices, commodity analysts say price increases as the number of weeks of supply in the lead stock diminishes. Investment analysts, on the other hand, say that the expectations of the consumers are an important factor. And financial market analysts claim it is the speculative interest of the investors in the futures markets that causes the price to rise. Besides these, here are some factors that influence the prices of lead in the market:
Trade Policy: The suspension or implementation of taxes by the government around the world on the trade of lead affects its supply. The governments also control the rules on resource extraction. These actions can either build or diminish the stockpiles, thereby affecting the prices on the market.
Geopolitical Events: The commodity market is highly impacted by geopolitical events, more so due to globalisation. Major economic changes in developed countries or armed conflicts impact the prices of lead.
Economic Growth: Developing and developed countries need more base metals like lead for developing infrastructure. This increases the demand for metals, and the prices follow.
Why Should You Invest in Lead?
You should consider investing in the lead due to the following reasons:
If you want to bet on the automobile market, one of the ways to go about it is by investing in the lead. Lead-acid batteries are crucial for the automobile markets, and considering the surging demand for vehicles in big markets like China and India, this could prove to be a good bet.
Trading commodities is the best way to hedge against rising inflation. Taking into account the limited supply of lead and high inflation, lead prices could rise in the near future.
Portfolio diversification is the process of investing your money into different asset classes to minimise risk and maximise return. Commodities like lead are a good bet for diversification as the risk is low and returns are good.
Advantages of Trading in Lead
There are two trends that make lead trading advantageous. China is the top consumer of lead in the world, and it is likely that its consumption will continue to rise. Continuous development and industrialisation in the country would support this. And lead will play an important role in meeting this demand – pushing its prices higher.
Another reason is the rising energy prices. Primary production of lead involves large amounts of energy. But with energy prices rising, the price of lead is also bound to rise.
How to Invest in Lead?
Here are some steps you must keep in mind when investing in the lead:
Research: Study the factors that affect the demand-supply dynamics of the lead. Stay on top of any political and economic developments around the world that could impact the prices of lead.
Investment Strategy: Before investing, it is important to figure out what part of your portfolio lead should be. This also includes being clear on how much risk you are willing to take. You might also want to decide whether to invest actively or passively.
Time Frame: How long do you want to invest in the lead? Are you in for the long haul? Or are you looking to take advantage of the cyclical disturbances in the market? Having a clear time frame in mind will help you decide on an investment strategy.
Investment Platform: Not every broker deals in commodity trading, so you want to have some commodity-trading-friendly brokers in mind. Out of commodity brokers, you want to specifically look for brokers who deal in base metals.