In February, the lack of consumption due to CNY holidays drove accumulation of stocks. Lead prices thus fell back from high levels. LME lead prices dropped below the $2,000/mt mark, reaching a low of $1,994.5/mt. On the first day after the CNY holiday, SHFE lead prices fell sharply and stopped falling at 15,800 yuan/mt, supported by costs.
In March, lead ingot supply and demand are expected to increase. In early March, the increase in demand brought about by the resumption of production of lead-acid battery companies lowered lead ingot inventories accumulated during the holidays. Lead prices rose to the 16,000 yuan/mt mark again. As of the close on the morning of March 11, the most active SHFE lead contract prices rose to a maximum of 16,280 yuan/mt.
From a supply perspective, the increase in lead ingot supply in March will be mainly driven by the secondary lead sector. The output of secondary lead in March is expected to increase by 120,000 mt month-on-month, which may limit the room for lead price gains. In the primary lead sector, in view of maintenance and recovery of smelters, the growth in the supply in March should be small. Producers of delivery brands may undertake maintenance in mid-to-late March, which can bolster lead prices.
On the consumer side, lead-acid battery companies have resumed production. With more working days in March, the operating rates of lead-acid battery companies are expected to increase. The resulting recovery in lead consumption has provided support for lead prices. Yet, in the traditional off-season from April to May, most companies will determine production based on sales.
In terms of raw materials, the domestic supply of lead concentrate is limited, and restrictions on Myanmar’s ore exports still exist. In the short term, lead concentrate TCs may remain low. The recent reopening of import window for silver has led to an increase in the import volume of lead concentrate. This may prevent lead concentrate TCs from reaching new lows in the near term. In terms of battery scrap, the demand for battery scrap has increased sharply after the resumption of production at secondary lead companies after the holidays. As the social inventory of battery scrap increased during the CNY, the supply and demand have barely balanced. While lead prices rose, the price of battery scrap has temporarily remained stable. The profit of secondary lead is gradually recovering, leading to an increase in secondary lead production this month.
There are obvious differences between domestic and overseas supply and demand. LME lead inventory stood at a seven-year high of 190,000 mt. Domestic lead inventories have increased, with the current social inventory of 67,300 mt (as of March 11), far lower than overseas. This is not conducive to the export of lead ingots. The export loss of lead ingots once approached 1,500 yuan/mt.
In terms of macro policies, China’s “Two Sessions” released many positive signals. The government work report proposed that GDP will grow by about 5% this year; the 2024 government work report set the tone of monetary policy as "flexible, appropriate, precise and effective" and required social financing and money supply to match expected economic growth and price targets. Central Bank Governor Pan Gongsheng released important signals on monetary policy at the economic-themed press conference held on March 6: First, there is room for lowering the reserve requirement ratio; second, continue to promote a steady decline in comprehensive social financing costs and pay attention to exchange rate stability. In addition, Wang Wentao, Minister of Commerce, introduced that China has two priorities in promoting consumption this year. One is to promote the replacement of old consumer goods such as automobiles, home appliances, home decoration, kitchen and bathroom, and the other is to boost service consumption.
In March, the new national standard for lead ingots (2023 version) came into effect. According to the new national standard, the grades of lead ingots are 99.996 and 99.994, with the bismuth content increased to 0.0015 and 0.0025 respectively. Currently, that has not had a major impact on lead market trades. The SHFE’s lead ingot delivery standard temporarily continues to use the 2013 version of the national standard. In the future, attention will be paid to the changes in lead ingot delivery standard and its impact on lead prices.
Lead ingots were gradually destocked in early March. That, coupled with favorable policies, pushed up lead prices. However, the declines in raw material prices such as battery scrap and the recovery of smelting profits may limit the room for lead price increases. In mid-March, inventories may accumulate due to the delivery of the SHFE front-month contract, thereby lowering lead prices. SMM predicts that SHFE lead prices will move between 15,900-16,400 yuan/mt, and the spot prices will stand at 15,800-16,300/mt.
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