Both lead supply and demand dropped, eyes on cost support

This week, key macroeconomic data due include the flash annualised fourth-quarter GDP of the eurozone, the US ADP employment in January, the final US Markit manufacturing PMI in January, the US unemployment rate in January and the seasonally adjusted non-farm employment in January. The Federal Reserve will announce its interest rate decision, which is expected to remain unchanged.

In terms of LME lead, LME lead stocks have continued to decline since the New Year's Day holiday, reaching as low as 108,500 mt. However, after LME lead surged to $2,188/mt last week, lead stocks rebounded. The contango of LME cash to the three-month lead contract turned into backwardation and stood at $8.84/mt as of January 25. As the declines in lead ingot inventories were priced in, lead prices rolled back some of their gains. It is expected that LME lead prices will run at $2,090-2,165/mt this week.

In terms of domestic SHFE lead prices, the pace of lead ingot destocking has slowed down. Meanwhile, there should be concentrated closures across upstream and downstream companies in the lead industry chain ahead of the Chinese New Year holidays this week, including battery companies. As such, lead prices are expected to fluctuate weakly due to lack of consumption. Lead smelters are still in the process of stockpiling raw materials. If the price of battery scrap remains high, it may provide cost support for lead prices. The most active SHFE lead contract prices are expected to stand between 16,050-16,400 yuan/mt this week.

Spot prices are expected to move between 16,000-16,250 yuan/mt. In terms of primary lead, there will be both increase and decrease in production at smelters this week. As downstream consumption weakens, the available spot supply is expected to increase slightly, reducing quotations with high premiums; in terms of secondary lead, as smelters shut down, the supply of lead ingots will decrease, reducing market quotations. This, combined with raw material stockpiling by smelters and high cost of battery scrap, will prevent secondary lead from trading with discounts. In terms of lead consumption, most lead battery companies will close this week, and lead consumption is expected to fall off a cliff. The spot trades will turn sluggish again.