Lead Prices Fall Below 17,000 Yuan/mt: How is the Fundamental Support? [SMM Analysis]

This week, under the influence of weak macro sentiment and consumption expectations, the overall non-ferrous metals market fluctuated downward. On Thursday (September 5, 2024), the SHFE lead 2409 contract fell below the 17,000 yuan/mt mark after several consecutive trading days of decline.

At the end of August, an SMM survey revealed that more than half of domestic smelters faced increasing inventory pressure. On one hand, after completing shipments under long-term orders in August, spot transactions were sparse, and the delivery progress of September long-term orders was slow. In the first week of September, smelters' inventories began to transfer to social warehouses. According to the survey, smelters' inventories were not fully cleared. If traders' long-term orders cannot be absorbed by downstream stockpiling, they may continue to be delivered to social warehouses. Recently, the lead market has been relatively bearish, with many negative factors not fully digested. In the spot market, sellers are divided into two groups: those selling at large discounts to recoup funds due to fear of falling prices, and those hoarding in anticipation of a rebound. The spot market is highly divided, and traders are largely in a wait-and-see mode. Short-term macro disturbances, lower-than-expected consumption performance in the peak season, spot discounts in refined lead, and increasing inventories have caused lead prices to fluctuate downward.

On the other hand, news such as the trade-in of electric vehicles and subsidies for replacing lithium batteries with lead-acid batteries in Hainan may slowly boost lead consumption. However, short-term battery orders and consumption have not quickly recovered. More importantly, after price increases during the off-season, new orders for downstream batteries have been poor. A battery company told SMM that August experienced the lowest operating rate for the same period in history, with a significant decline in export orders being the main reason. It was only at the beginning of September that orders began to improve and the budget for just-in-time procurement started to increase slowly. Additionally, factors such as the arrival of imported lead in early August have led to spot discounts despite falling lead prices. Downstream buyers have not purchased at low prices, remaining cautious and waiting for a bottoming-out opportunity.

Fundamentals side, despite frequent positive news, lead metal prices have not responded quickly. On the supply side of refined lead in September, due to maintenance at primary lead smelters and lower-than-expected production resumption for secondary refined lead smelters amid higher-than-expected costs, there is an expectation of supply decline. Additionally, battery scrap prices have not weakened in line with lead prices over the past two weeks, causing secondary refined lead smelting to shift from profit to loss. Therefore, this week, secondary refined lead transactions have seen more narrowing discounts and firmer prices than primary lead transactions. On the other hand, news such as the trade-in of electric vehicles and subsidies for replacing lithium batteries with lead-acid batteries in Hainan may slowly boost lead consumption. However, short-term battery orders and consumption have not quickly recovered. If weak consumption for replacing electric vehicle and car batteries results in insufficient growth in battery scrap recycling, it may continue to affect the supply increase and cost control of secondary refined lead. In the short term, the cost support for lead prices is still acceptable, and future attention should be paid to the realization of consumption expectations and changes in the cost of secondary refined lead.