Fundamentals were mixed, entry of bulls may boost lead prices

SHANGHAI, Jul 24 (SMM) – This week will witness FOMC meeting in July. During last week, more unemployed people in the US raised possibility of interest rate hikes. At the same time, former Federal Reserve Chairman Bernanke said that the Fed is expected to raise interest rates in July, which may be the last round. Europe and the US will release PMI data, the US annualized quarterly rate of real GDP in Q2, and the annualized quarterly rate of the core PCE price index.

In terms of LME lead, as China's lead ingot exports arrived at ports, LME lead stocks increased by 3,000 mt WoW to 50,400 mt, setting a new high since February 14, 2022. At the same time, LME cash-to-3M contango was $6.5/mt as of July 20. During last week, Indonesia raised export tariffs on lead concentrates and zinc concentrates. In addition, a rise in domestic lead prices boosted smelters' demand for imported lead ores. Therefore, LME lead prices rebounded. Focus will need to be put on whether the Fed will raise interest rates as scheduled. Rising US dollar may slow down lead price uptick to a certain extent. LME lead price is expected to be $2,100-2,170/mt.

In terms of SHFE lead, maintenance of lead smelters sparked limited lead ingot supply, and there was absent delivery of lead ingots. In addition, higher lead prices shored up demand from downstream buyers. Therefore, the overall lead supply was tight, universally stimulating smelters to pre-sale goods. What’s more, there was price inversion between secondary refined lead and primary lead. SHFE lead market appeared buoyed. A decrease in maintenance-induced primary lead production losses and improved profit of secondary lead will add supply to lead market this week, compared with last week.

Long-term contracts in upstream and downstream sectors after July 25 will deserve to be monitored. Currently, SHFE lead open interest totalled 160,000 lots, marking a record high, which revealed that the recent funds favoured lead. On the whole, SHFE lead may continue to swing on a bullish footing this week, seeing the most-traded contract at 15,800-16,150 yuan/mt. Spot lead prices are expected to be 15,550-15,850 yuan/mt this week. Maintenance of primary lead smelters will come to an end, bringing with normal supply. In addition, after the settlement of long-term contracts of lead ingots in July, supply of delivery goods in circulation may increase. Under this circumstance, spot premiums may shrink.

In terms of secondary lead, with elevated lead prices, some smelters will hoard goods and wait for the highest bid, but rising profits of secondary lead smelters may stimulate smelters to produce. Therefore, spot premiums may no longer occur, and will even flip to big spot discounts. In terms of consumption, terminal consumption was moderate, and order intakes of downstream enterprises picked up. Lead price uptick led to higher costs and buying appetite weakening, and a few enterprises had holidays. With the start of the new month for delivery of long-term contracts, downstream demand for bulk orders may decline.