SMM Lead Market Daily Review (2015-6-29)

SHANGHAI, Jun. 30 (SMM) - The most active contract touched a low of RMB 13,020/mt after opening last Friday evening session at RMB 13,080/mt, to end down RMB 40/mt at RMB 13,060/mt. The contract dived to RMB 12,755/mt on Monday and closed the day down RMB 280/mt or 2.14% at RMB 12,820/mt. Trading volumes fell 1,012 to 3,746 lots with positions down 110 to 13,106.

In Shanghai’s market, traded prices were RMB 13,350-13,380/mt for Nanfang and Tongguan brands, a premium of RMB 300/mt over SHFE 1508 lead, versus RMB 13,180-13,250/mt for Ximai brand.

Smelters shipped no goods out. Ximai brand goods stored by traders several years ago flowed into market while older Shuangyan and Honglu brand goods were hard to hunt after spot prices fell. Downstream makers did not purchase raw materials due to tight liquidity. Cheaper lead in Henan attracted more buyers, pressing Shanghai’s trades again.

SMM survey of 30 industry insiders shows 53% of them are bearish about lead prices this week, expecting LME lead to test support at USD 1,750/mt and spot lead prices to fall to RMB 13,200-13,300/mt. On the macro front, an escalation of Greek debt crisis and positive expectation for the US nonfarm payrolls drove up the US dollar index, which will weigh on base metal prices. The falling long positions in lead and wider cash-to-three-month contango in LME lead may presage weaker LME lead prices. In China, most primary lead smelters have completed maintenance operations and secondary lead production also recovered with the busy farming season coming to an end. Meanwhile, downstream demand is anemic due to low operating rates at lead-acid battery producers. As such, spot prices will come under pressure.

13% of industry insiders are bullish that LME lead will rise to USD 1,800-1,830/mt and spot lead prices will increase about RMB 50/mt. Liquidity conditions are expected to improve some at the beginning of July, and some downstream buyers will begin build raw material stocks. Meanwhile, an easing of financial pressures will allow suppliers to hold prices firm. In addition, low secondary lead output caused by tight scrap battery supply and a reduction of VAT rebate rate for secondary lead producers from 50% to 30% effective on July 1 will also help support lead prices.

The remaining 34% of market players expect lead prices to hold steady this week considering mixed reports, including China’s interest rate and RRR cuts and the lingering Greek debt issue. In China, smelters will be less willing to sell at lows with financial pressure easing in early July, while downstream producers may increase purchases, helping lead prices stabilize.