SMM Lead Price Forecast in May

SHANGHAI, May 22 (SMM) - In April, lead ingot supply and demand both fell. The former was caused by the concentrated maintenance carried out by primary lead and secondary lead smelters, while the latter was attributed to the off-season of lead-acid battery sector.

During the month, the social inventory kept dropping amid lower lead ingot supply, pushing up the lead spot and futures prices.

In May, the lead-acid battery sector is still in the off-season, but the smelters in Henan, Anhui, Yunnan and other places have resume their production. Therefore, the overall lead ingot supply will grow on the month. The spot discount of primary lead and secondary lead have gradually expanded, and the lead prices also fluctuated downwards. As of May 9, the most-traded SHFE lead contract dropped to 15,230 yuan/mt.

In mid-to-late May, spot lead ingot prices will be subject to warrant delivery and maintenance of deliverable brands.

On the supply side, some primary lead and secondary lead smelters resumed their work in early May, and the growth of more than 30,000 mt in spot supply will weigh on lead prices until mid-May. In mid-to-late May, some primary lead smelters, mainly the deliverable brands, will carry out their routine maintenance until June. Therefore, the decline in primary lead supply that ensues may support the lead ingot prices to rebound.

In terms of consumption, the lead-acid battery enterprises generally cut their production in April and May, and the lead ingot demand was further suppressed due to the Labour Day holiday. SMM presumes that the weak downstream consumption will extend in May, weighing heavily on lead ingot prices.

Nevertheless, the raw material costs may underpin the lead prices. First, due to the falling sulphuric acid prices, smelters preferred to buy lead concentrates that are rich in copper, zinc and silver content instead of those generating sulphuric acid during the process. Mines that produce concentrates in rich copper, zinc and silver content thus lowered their TCs. Second, the supply of lead-acid battery scrap is limited as the lead-acid battery replacement market was in the off-season, but the secondary lead smelters still plan to increase their production, hence the scrap prices are on the rise. The costs of the two major raw materials both have risen, which may raise the lead ingot prices in the near term.

In general, lead ingot prices may fall at first in May due to the increase in overall supply and the poor demand during the off-season of lead-acid battery sector, but the growing costs and maintenance undertaken by the deliverable brands will later push up the prices. SMM predicts that in the second half of May, SHFE lead will move between 15,100-15,500 yuan/mt, and the spot prices will be 15,000-15,350/mt.