Rock, Paper, Scissors – Lithium Kills Lead Dead

In recent weeks I was summoned to give a briefing to one of the largest companies in Germany on their Futurology project as it relates to mining over the next 15 years. I was almost confounded when they asked me which metal we will not need to mine at the end of the designated period. After a brief reflection the answer seemed obvious and that metal was Lead. Even they were taken a bit aback as Lead has been part of human endeavour and industry since the earliest days of human civilization.

The logic though is that Lead is a metal with a strong (or indeed the strongest) component of recycling in the metals space. This implies that the existing stock of Lead, which is primarily “stored” in the world’s stock of Lead-acid batteries is infinitely recyclable. Very few batteries escape the recyclers tender mercies after a vehicle has gone to the Great Beyond. This implies that most Lead mined now goes to meeting incremental demand for automobile batteries.

This begs the question of what happens to Lead mining when the amount of Lead recycled equals the amount of Lead required for traditional applications if the usage in Lead batteries starts to go into reverse? The rise of the Lithium-ion battery and the electric vehicle seems destined to hasten that day.

Lithium – Out with the Old

The macro trend that is ringing the death knell for Lead’s once mighty position is the rise of Lithium and moreover the potential of the surge in electrical vehicle penetration to make some countries “combustion engine free zones” by 2030. This is not a pretty scenario for Lead. As cars are getting lighter one of the heaviest components (the lead battery) is also the most retro in its contribution to moving people forward.

Even the industry thinktank, the International Lead Zinc Study Group (ILZSG) has grasped the extent of Lead’s dilemma: Their latest projections cite the dangers for Lead demand as:

  • Lead‐acid already losing market share to lithium‐ion in some stationary battery sectors

  • Pressure from auto‐makers to develop more efficient and robust batteries

  • Main challenges for lead‐acid are Dynamic Charge Acceptance (DCA) and shallow cycle life

  • Competition with lithium‐ion in auto‐batteries intensifying as costs come down (eg. Tesla)

The rise of China and the desire of its middle class for automobiles was a phenomenon which gave Lead demand its one last boost over the last decade. Even at the lower levels in China though we see Lead starting to go into eclipse. In the chart below we can see how in electric bicycles, used by the lower echelons of the Chinese economic pyramid are expected to decline in absolute terms and the share held by Lead-acid batteries to face growing replacement by Lithium-ion batteries.

This chart humble as it is shows the most disturbing trend. If one looks at 2019 consumption of Lead for this product it is back at 2010 levels. This might imply that the scrapping of ten year old bicycles will, by the end of this decade, provide all the Lead needed for new bicycles using Lead acid batteries. Here we see in microcosm that Lead will be a zero-sum game with a “closed-cycle” of Lead recycling ultimately serving most, if not all, “new” demand for Lead.

If countries move en masse to adoption of EVs over combustion engines (as we should expect in China by 2030) then not only will most demand for Lead batteries be removed but there will be a massive flowback of Lead from existing vehicles being scrapped. This will remove all incremental demand for Lead and provide “surplus” Lead for which we cannot foresee any new application.

The Zinc Conundrum

The demise of Lead that we posit here has an interesting implication for Zinc mining. As is well-known I am an unreconstructed bull of Zinc. Traditionally Lead and Zinc and Silver have appeared in the same mines (to varying degrees) and have either pulled together or pulled against each other in the economic equations that make those mines viable. That begs the question of what should happen to the economics of existing or planned mines should Lead become something akin to a zero in the algebraic calculation of the economics of a mine. Moreover if the Lead cannot be sold then what does one do with it?

The table below shows the perilously poised nature of the Lead market.

However, since those April projections, supply has exceeded demand by 48,000 tons on the global lead market from January to August, according to more recent statistics from the ILZSG.

As we all know there have been reductions in the output of Zinc/Lead mines due to mines closing or being mothballed. This has propelled the Zinc price substantially higher but left Lead, not unjustifiably, wallowing.

Thus if even mine closures can help Lead then what can? One thought that crossed the mind was that if Lead’s price declined enough then recycling may lose its viability (despite government demands that Lead batteries be recycled rather than go to landfill etc).

The rosy lining to Lead’s demise is that Zinc mines will need to be justified by an even higher price than the currently projected sweet-spot of $1.20 per lb or above because Lead will not be contributing much or anything to the equation. This implies an even bigger boost to Zinc and a hunt for the type of mineralogy in deposits that are high-grade in Zinc (and silver) and relatively lower grade in Lead. A hunt for a unicorn maybe?

Conclusion

If this was the film Gladiator, then Lithium would be played by Russell Crowe and Lead would be some aged actor destined to be crunched on the head with a spiky ball and dragged from the arena to be fed to the beasts awaiting below. This will not be the first time that a mineral or an alloy thereof has gone out of fashion. Bronze is not what it was and pewter is scarcely employed these days. Thorium once had widespread usage in gas mantles to the extent there was even a cartel that dominated its trade.

Lead though is one of the 800lb gorillas of the base metal space and its demise (or substantial sidelining) will make waves because of its intimate connection with the Zinc and Silver mining business. Lithium comes out with the laurels from this David & Goliath slugfest. Like all new champs though, it needs to watch its back for new contenders arising as the airwaves are thick now with talk of Manganese, Antimony and all sorts of other exotic combinations that will continue to make the battery space a veritable ferment of new technologies.

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