Lead prices hit a near three-year low! Tok puts record lead delivery to ignite supply-demand imbalance, LME inventories hit new high

The lead market of the London Metal Exchange (LME) is experiencing an epic supply shock. On Wednesday (July 15), LME-tracked lead inventories surged by 86,500 tons in a single day, reaching 456,575 tons, the highest level on record since 1970. Lead prices fell by 0.8% to $1,852 per ton, touching $1,840 at one point, the lowest since April 2025, approaching the lowest level since 2022. According to sources, a batch of 80,700 tons of lead flowed into LME warehouses on Tuesday, pushing total inventories to 370,075 tons - the highest since 2012. Further deliveries on Wednesday will push inventories to an all-time high in LME data history. It was revealed that both record deliveries were related to Trafigura Group, a global commodity trading giant. The deliveries were made in Singapore, where the city-state has absorbed over 90% of lead inventories in the LME global storage network. Arbitrage in warehousing: a "money-printing machine" of $0.51 per ton per day Trafigura's delivery actions were not simply physical shipments, but a sophisticated financial arbitrage operation. According to sources, this delivery was related to a "rent deal": the party delivering the metal can share the daily warehousing rent paid by the new owner during the metal storage period with the warehouse. The lead warehousing rent in Singapore is $0.51 per ton per day. Calculated at 80,000 tons, the rental income for just one day exceeds $40,000. Large inventories can generate significant cash flow in warehouses, incentivizing metals to remain in registered warehouse receipts status (available for delivery), thus exerting sustained pressure on nearby prices. Singapore has become a hub for lead and zinc storage due to the high cost and complexity of logistics involved in transporting metals once they arrive in the densely populated city-state. This "easy in, difficult out" structure is highly advantageous to warehouse companies -they can earn daily rental income from metals that have arrived at the warehouse, and often offer discounts to trading companies to encourage a continuous influx of metals. Trafigura acquired the Singapore business of Grafton Logistic Services last year to strengthen its warehousing presence in Singapore. The complex trading ecosystem built around the LME warehousing network means that analysts and investors often interpret stock flow data cautiously, making it difficult to use it as a signal of market fundamentals change. However, this substantial delivery coincides with the lead industry facing deeper structural challenges. Singapore: the "ultimate destination" for excess metals Singapore has become the "reservoir" for global lead surplus. LME lead inventories in Singapore now account for over 90% of its global warehousing network. This concentration itself is a source of market risk. Warehouse utilization rates often exceed 90%, and institutions often face high costs or inflexible logistics issues. Inventories frequently switch between registered and unregistered states in a circular mechanism, creating a complex ecosystem of warehousing queues and rental incentives. As long as Singapore's massive inventories are not consumed or moved out of registered warehouse receipt status, lead prices may continue to be under pressure, lagging behind the performance of other metals on the LME - as the market can point to a "ceiling" in storage levels at a 55-year high. Structural dilemma: electric vehicles are "killing" lead demand The fate of lead is almost entirely tied to lead-acid batteries - which are used to start the starter motor of internal combustion engine vehicles. With the continuous growth in sales of electric vehicles, this demand pillar is weakening. Analysts at Morgan Stanley pointed out in a report last week that as demand is mainly related to lead-acid batteries, "consumption faces structural resistance from the industry's decline." "Continued growth in secondary output and soft demand growth due to CKH HOLDINGS continuing to lead to oversupply in the market." Data confirms this assessment: lead demand has grown by an average of just 0.5% per year over the past four years. In the Chinese market, the penetration rate of new energy vehicles continues to rise, directly squeezing the application space of lead-acid batteries in the transportation sector; in the scenario of electric two-wheelers, lithium batteries, with their advantages of high energy density and long cycle life, are gradually replacing lead-acid batteries as the mainstream. After the implementation of the new national standard for electric vehicles, the penetration rate of lithium-ion batteries in the low-end electric vehicle sector has increased to about 28%. Lead is the only industrial metal traded on the LME this year that has recorded a decline, with a cumulative decline of nearly 8%; meanwhile, tin, during the same period, has risen by 33%, leading other metals. This contrast clearly outlines the marginalization trajectory of lead in the electrification era. What's next for lead prices? Trafigura's delivery actions have sparked market attention - does this mean that systematically accumulated off-market inventories are now being dumped into the LME system? Analysts point out that large-scale deliveries often suggest traders have pessimistic expectations for the short-term price outlook. In the short term, the record-high supply shock in LME lead inventories and the weak demand in the off-season for lead-acid batteries form a double pressure. Whether Trafigura will have more follow-up deliveries will be a key variable in determining whether lead prices can stabilize. If other traders follow suit in selling off, lead prices may come under further pressure. In the long term, the erosion of lead-acid battery demand due to the transition to electric vehicles is an irreversible structural trend. While the energy storage sector may provide some incremental demand, it is difficult to offset the contraction in traditional demand in the short term. It is worth noting that the trend in lead prices is subtly related to geopolitics as well. Tensions in the Strait of Hormuz are pushing up oil prices, and if the situation in the Middle East continues to deteriorate, rising energy costs may provide some support for lead prices from the cost side, but this is separate from the improvement in market fundamentals on the demand side. The "perfect storm" in the lead market - record inventories, structural demand contraction, trading companies' rental arbitrage - is brewing simultaneously. Under the double pressure of 460,000 tons of enormous stocks and the structural substitution of electric vehicles, the "darkest moment" for lead may be far from over. In this energy transition driven by electric vehicles, lead may be going through a path similar to what coal once went through: when alternative technologies irreversibly change demand structures, redefining the bottom of prices is often more brutal and lasting than the market expects.