Lead output in China, the largest user, may contract further this month, following a drop in May, amid record inventories and as battery makers close plants in response to a crackdown on polluting industries. “Companies along the industry chain, from refined producers, recyclers, to battery makers, have started to cut output since last month,” said Chen Jianfang, vice president of Chunxing Group’s recycled lead production division. The unit is China’s largest recycler of lead-acid batteries. Lower demand from lead-acid battery makers may cap a 43 percent gain in prices over the past year and squeeze profits at producers including Henan Yuguang Gold & Lead Co. and Shenzhen Zhongjin Lingnan Nonfemet Co. Battery producers, who account for 80 percent of the metal’s consumption, have closed along with lead recyclers after hundreds were poisoned by the metal in Zhejiang and Guangdong provinces. “Many smelters moved forward their maintenance and repair plan to May and June given the tepid demand,” said Zhang Shu, an analyst at data provider SMM Information & Technology Co. “I expect the June number to be even lower than May’s.” Output of refined lead dropped 13 percent last month from April to 345,000 metric tons, the National Bureau of Statistics said on June 14. China has record commercial lead inventories of 260,000 tons, according to SMM. Operations Suspended Lead-acid battery plants in Zhejiang, Guangdong, Sichuan and Henan provinces have suspended production since mid-May, Xu Hong, head of the lead-acid battery branch at the China Electrical Equipment Industry Association, said today. Zhejiang and Guangdong are the two biggest producing regions, accounting for 36 percent of the nation’s total output, according to SMM. “They are not allowed to do anything that involves lead,” she said. Tianneng Group’s Hong Kong-listed unit said the company had suspended operations at its Wuhu plant pending government inspections, according to a statement to the bourse yesterday. The legal representative of Zhejiang Haijiu Battery Co. was detained last month after more than 300 people were found to have elevated levels of lead in their blood, the official Xinhua News Agency reported. Separately, at least 600 people, including 103 children were found to suffer from lead poisoning in the province, Xinhua said June 12. China’s lead demand is expected to rise 8 percent this year to 4.05 million tons, compared with growth of 11 percent last year, SMM estimated before the crackdown started in May. China makes 200,000 tons to 300,000 tons more refined lead than it consumes a year, Leon Westgate, an analyst at Standard Bank Plc, said in a note on June 14. “I don’t think the industry will return to normal production in the near future,” Chunxing Group’s Chen said. Prices Fall Lead for delivery in three months on the London Metal Exchange dropped 0.2 percent to $2,512 a ton at 11:32 a.m. in Shanghai. Metal for immediate delivery in Shanghai fell to about 15,875 yuan ($2,449) a ton in mid-May, the lowest since July 2010. The metal was traded at 16,200 yuan a ton yesterday. Lead output in China climbed to a record 424,325 tons in November, according to Antaike Information Development Co. Production was fuelled by the auto industry as demand for vehicles surged 32 percent to the highest ever in 2010. Sales have slowed this year, dropping for the first time in more than two years last month, as the government phased out incentives and imposed purchase restrictions to curb traffic. “Nobody’s buying now,” said Hou Ming, a physical trader at Shanghai Eagle-Metals Co., the largest lead and zinc trading firm in eastern China. “Some estimate the volume these days is only 20 percent of what it used to be.” Stockpiles Climb China stockpiles have gained after the government started to levy a 10 percent export duty on refined lead from 2007 in an attempt to conserve resources and control environmental pollution. Exports have been unprofitable since 2009, according to SMM’s Zhang. “Although environmental checks have always been a topic, Beijing obviously has become tougher this year,” said Leslie Liang, chief representative of lead and zinc researcher CHR Metals Ltd. “The government understands that if it doesn’t deal with the matter properly, the outcome on public health would be disastrous, so we’d probably see the impact spread.” To contact the Bloomberg News staff on this story: Helen Sun in Shanghai at hsun30@bloomberg.net To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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