Asian Metal: It’s the last month of 2013. Could you give a brief comment on the lead market performance in 2013?

Wang: Expect copper, all the base metals almost have the same performance in 2013. The lead ingot prices declined greatly in the first half of this year，dropping as much as about 7% in Chinese spot market. The lead ingot prices ever bounced up strongly in August and September, impacted by kinds of favorable news, such as the strong U.S. and China economic data, and the continuously rising of deep-cycle lead acid battery prices and the news that SHFE will change the lead futures contract from 25t/lot to 5t/lot on the SHFE. The fourth quarter is usually the bullish consumption season for start type lead acid battery and lead ingot, but the current Chinese lead ingot market remains somewhat dull.

The demand for lead ingot from deep-cycle lead acid battery sector is higher than that from start-type lead acid battery sector in China. Start type lead acid battery sector accounting for lead ingot consumption declines in China this year. The lead ingot consumption from deep-cycle lead acid battery industry will continue rising in the coming years. There are large consumer groups for electric bicycles in China and the consumption area will enlarge from eastern area of China to more western provinces and from cities to rural areas.

Asian Metal: Most lead ingot suppliers and consumers used to reduce lead ingot inventory to draw back capitals at the year-end. Do you think the lead ingot prices will retreat in December?

Wang: Financial strain surly will exert pressure on the market. However, I think there will be limited room for lead ingot prices to head down in Chinese market in the near term, as it is still the bullish season for start-type lead acid battery consumption, most lead smelters hold low inventory of lead ingot and the supply of lead concentrate remains very tight in Chinese market. The lead consumption supply may decline in the coming months due to the cold weather in northern area of China, so the prices of the material will be very firm in the near term.

Asian Metal: According to the low lead ingot prices, low operation rates in lead smelters and the profit, most Chinese lead ingot producers think that lead ingot market in 2013 is much worse than that in 2012. Do you think so?

Wang: Most Chinese lead ingot producers suffered a great loss this year due to the sluggish lead market and great drop of silver prices. Although many lead smelters’ lead ingot production is very high, most participants pay more attention to their byproduct—silver, as most of their profit is from silver. Some Chinese producers did not hedge in the futures market, so they struggled after lead or silver prices dropped sharply.

The imported lead concentrate prices are higher than the prices of lead concentrate supplied by domestic mines this year, so there will be a great loss for those lead smelters who import lead concentrate from overseas market with a large amount. Most Chinese lead smelters increased the lead concentrate purchase volume in domestic market this year, leading to the deficit increase of lead concentrate supply in Chinese market. The tight supply and high cost of lead concentrate exerted great pressure on most Chinese lead ingot producers this year.

Asian Metal: In such sluggish market situation, how are your company’s sales this year? How can traders ensure the growth of profit in the dull market?

Wang: Our company’s lead ingot sales volume in 2013 is higher than that in 2012, but the profit is very thin this year. We trade lead ingot on the physical market and futures market simultaneously. However, there was no great price gap between lead ingot prices in Chinese spot market and the futures market, so it’s hard for us to gain profit. Additionally, more and more lead consumers purchased lead ingot from lead smelters directly, so suppliers proposed more stringent requirements for traders and traders’ profit became narrow. Traders can only gain about RMB10/t if they purchase lead ingot from lead smelters and then sell the metal to buyers. If traders missed the two bouts of lead ingot price rebound in mid 2013, their profit will be very thin. Therefore, it’s very important for traders to have the right forecast for the market. In addition, traders have to sign long-term contracts with lead smelters to get more discounts. For example, we purchased lead ingot from Henan-based lead smelters with the discount of RMB180/t on annual contracts in 2013, but when lead ingot supply became tight, suppliers reduced the discount to RMB50/t or did not give any discounts for lead ingot spot sales in mid this year. In such situation, it means traders’ profit increases.

Asian Metal: The automobile production and sales continue to increase and the lead acid battery production keeps about 10% YOY growth in China in 2013. However, most lead ingot producers always complained that the lead ingot demand from consumers is very sluggish this year. What do you think of it?

Wang: I think most small and mid-sized lead producers complain the sluggish demand. Deep-cycle lead acid battery market kept dull before August and many small-sized lead acid battery producers were out of production or ran with low operation rates. Tianneng and Chilwee, the two largest deep cycle lead acid battery producers in China, kept expanding their production capacity and increased market shares in recent two years, but their profit may not increase so much. Most large-sized lead acid battery producers purchased lead ingot from most large-sized lead smelters on long-term contracts. Small-sized lead smelters sell the metal to some small-sized battery producers or in the spot market.

Asian Metal: Some lead smelting projects will start operation in late 2013 or early 2014, so the lead ingot production may continue to increase next year. Meanwhile, the secondary lead production capacity will increase further in China. What do you think of the overcapacity in Chinese lead smelting market?

Wang: The problem of overcapacity may continue in Chinese lead market for a long term. However, I doubt if the new smelters can start operation as scheduled or they can maintain normal production after starting production. Most operating lead smelters are under great pressure from finical strain in China this year. I think the new projects will be also impacted by tight liquidity. Additionally, impacted by the strict environmental protection inspection, the secondary lead production declined in China this year. Therefore, I don’t think the lead prices will be dampened by the increase of lead smelting production capacity next year. According to statistics, it was predicted that the lead smelting capacity would increase 700,000tpy in 2013, but actual growth is only 300,000tpy this year.

Asian Metal: Chinese government may impose 5% consumption tax on lead acid battery. What impact will the tax bring to lead acid battery and lead ingot market?

Wang: If the government can levy the tax on all the lead acid battery producers in China, it will be a hammer blow for all small-sized lead acid battery producers, who will lose their low production cost and price advantage. However, if most small-sized battery companies use tax avoidance strategies to avoid the consumer tax or other taxes while it’s hard for most large-sized companies to avoid the tax, small-sized companies may have more price advantage after imposing the tax.

Asian Metal: What do you think of the lead market outlook in 2014?

Wang: I think the lead market in 2014 will become stronger. Chinese economic growth will keep stable or slow increase and the growth of lead ingot consumption will not slow down in China next year.

However, the silver market may remain dull in the coming year. Silver consumption in industry remains sluggish. Meanwhile, once Fed begins winding down the stimulus program, silver market will be dampened greatly.