SMM Lead Market Daily Review (2015-7-6)

SHANGHAI, Jul. 7 (SMM) – SHFE 1508 lead opened at RMB 12,895/mt during last Friday evening session and dived to RMB 12,780/mt with shorts gathering strength, to close down RMB 160/mt at RMB 12,860/mt.

The August-delivery lead moved around RMB 12,800/mt during Monday trading session. Shorts entered market in the afternoon and the contract closed down RMB 305/mt at RMB 12,715/mt. Trading volumes totaled 2,456 lots with positions down 246 to 12,822.

Nanfang and Chengyuan brands quoted RMB 13,150-13,160/mt earlier in Shanghai but later were lowered to RMB 13,100-13,120/mt, a RMB 330/mt premium over SHFE 1508 lead. Jiangtong brand was offered at RMB 13,080/mt.

Hechi Nanfang Nonferrous Metals Group moved goods out and Jiangtong brand appeared in Shanghai for the first time, driving supply up. A small number of large producers purchased at lows after lead prices fell. But most downstream buyers watched from sidelines owing to tumbling futures prices. Cheaper goods in Henan also attracted more buyers, leaving trades quiet in Shanghai.

SMM survey of 30 market players shows that 63% of them see LME lead to fall to USD 1,700/mt this week and China spot lead will test RMB 13,000/mt. Greek people voted “no” in Sunday’s referendum and risk of a Greek exit grows, throwing market into panic and sending dollar up. Meanwhile, risk assets suffer a sell-off. Those factors will all depress base metals prices.

Though China has released a series of policies to support China’s A-share, the share still continues to drop, fueling market panic again. The pessimistic sentiment extends to metals market, boding ill for metals prices. LME lead tumbled last Friday with shorts entering market. And there is no support between USD 1,700-1,750/mt, leaving room for a further fall. In China’s spot market, smelters rushed to sell while end-user consumption fails to pick up, driving supply up in market, which bodes ill for spot prices.

34% of industry insiders expect lead prices to remain stable this week. On the macro front, the result of Greek referendum will be digested and the issue will not have significant impact on the market before further progress on the talks between Greece and its creditors is reported. In China, decline in the stock market eased down after the central government took measures.

In addition, LME lead inventories fell slightly, and the cash-to-three-month contango in LME lead remained low, which, combined with the positive MACD, will help prices stabilize.

In China’s spot market, primary lead supply will not increase significantly as several smelters will conduct maintenance this month. Secondary lead production is also curbed by tight scrap battery supply. Meanwhile, operating rate at downstream producers did not fall sharply. In this context, spot prices may hold steady.

The rest 3% believe LME lead will rise to USD 1,770/mt and China spot lead will move between RMB 13,150-13,250/mt. They hold that Greek debt issue has been absorbed in short term and China’s A-share will stop falling with favorable policies, which will strengthen market confidence. Tight supply and growing costs caused by VAT rebate cut for scrap recycling operations from 50% to 30% will lend support to secondary lead prices, further supporting primary lead prices.