China's H2 Lead Demand Could Spurt on Higher Car Sales

BEIJING, Apr. 9 - Higher vehicle sales may drive up second-half demand for lead in China, the world's top lead and automobile market, sources at smelter and battery makers said on Wednesday.

Local media have said China's vehicle sales could post a monthly record for March after 2008 saw the lowest annual growth in more than a decade.

The rise may boost demand for lead from June or July, said Tang Chenghe, chairman of smelter Anyang Yubei Gold and Lead, which has 260,000 tonnes of primary and recycled lead capacity.

"There will be a gap between the car sales and demand for lead. (The demand) would be more obvious in two to three months' time," Tang told Reuters.

Demand for spot lead has climbed in the past two weeks in Shanghai, even though prices PB-1-CCNMM have already risen more than 20 percent since the beginning of this year, traders said.

But the rise has still lagged the rise on the London Metal Exchange. Benchmark three-month LME lead prices MPB3 have soared 32 percent this year, to $1,315 per tonne on Wednesday.

"The rise in car sales would benefit related supplies for the sector," said a purchasing official at Fengfan Company, one of the country's leading battery makers.

The firm's battery sales had risen about 10 percent from the fourth quarter, when battery demand at home and overseas fell because of the global economic slowdown, but sales are now at around the same level as a year ago.

The firm, which uses 100,000 tonnes of lead annually, had no plan to boost lead stocks yet, given that car makers were selling stocks, the official added. It holds stocks of about 2,700 tonnes of lead, or roughly 10 days' consumption.

Battery makers were not keen to build stocks at above 12,000 yuan ($1,754) per tonne, now at 12,750 yuan, as exports of battery remained weak, limiting the price rise, a Shanghai lead trader said.

"Everybody is talking about recovering car sales," the trader added. "What we saw is that the sales of lead have risen and prices are steady."Customs data showed China's exports of batteries for engines fell nearly 30 percent on the year to 1.844 million units in the first two months of this year, while those of batteries for other sectors dropped 36 percent to 13.312 million units.

But an official at Yuguang Gold and Lead 600531.SZ, China's top lead producer, said the country's large base of vehicles was supporting demand for lead.

"Just for the replacement of batteries for existing volumes, it is already big," the official said.

By the end of last year, China had 170 million vehicles and 80 million electric bicycles.

A battery for a passenger car uses about 9 kg of lead, while that for a truck requires 12 kilos. Electric bike batteries use about 7.5 kg of lead.

China's consumption of lead may rise 4 percent on the year to 2.86 million tonnes this year, state-owned research group Antaike predicts. Growth will be lower than last year, when consumption swelled by more than 10 percent.