Tight supply coupled with capital may cause lead prices to fluctuate at high levels

European and US markets were closed on April 1 due to Easter; April 4-6 is the traditional Chinese Qingming Festival. From April 3, the Shanghai Futures Exchange will not conduct night trading. The market will close on April 4-5. Key economic data due this week include US JOLTs job vacancies in February, February factory orders, March ADP employment, March unemployment rate and seasonally adjusted non-farm payrolls in March.

In terms of LME lead, LME lead inventories reached a new high during the week, reaching 272,200 mt as of March 28, a new high since March 19, 2013. The suspension of production at overseas lead and zinc mines increased tightened the supply of ore. The sharp rise in SHFE lead prices led to the expansion of the SHFE/LME lead price ratio, reopening the lead concentrate import window. The current overseas inventories remain high. LME lead is expected to trade between $2,000-2,100/mt after Easter Monday.

In terms of SHFE lead prices, the logic of this round of price gains is mainly due to the tightening supply, driven by the production reduction and suspension of overseas lead and zinc ore mines and the maintenance of domestic primary lead smelters, especially the maintenance at deliverable brands producers. In addition, the higher requirements for lead ingots under the new national standard raised concerns about the insufficient deliverable volume of lead ingots. The increase in lead prices has far exceeded the possible extent driven by the fundamentals. Currently, sellers are enthusiastic about delivering cargoes to warehouses, and the spot premiums of delivery brands have increased sharply. High premiums due to the delivery factor may continue to push lead prices to fluctuate at high levels. In terms of lead consumption and secondary lead sector, downstream companies stood on the sidelines. Discounts for secondary lead expanded. The futures and spot markets diverged. After the delivery, prices may return to fundamentals. The most active SHFE lead contract is expected to trade between 16,600-17,150 yuan/mt.

The spot prices are expected to move between 16,450-16,800 yuan/mt. In terms of primary lead, an increased number of smelters of deliverable brands conducted maintenance, tightening the supply of lead ingots. Meanwhile, the price spread between futures contracts and spot cargoes expanded, and suppliers were inclined to make deliveries to warehouses. Spot cargoes are expected to trade with premiums in the near term. The supply of battery scrap is relatively ample. After the lead price rises, the profits of secondary lead have improved. In this scenario, secondary refined lead may be sold at a large discount. In terms of lead consumption, some downstream companies plan to close for 1-2 days for the Qingming Festival, thus the purchase of lead ingots is expected to decrease.