Lead Prices Weaken, Testing Cost Support: How is the Spot Market Performing? [SMM Analysis]

Lead Futures Market

This week, lead futures fluctuated downward. At the beginning of the week, LME lead fell for two consecutive trading days, and the most-traded SHFE lead contract also declined simultaneously. In the fourth quarter, the overseas macro environment was disturbed by the US elections and geopolitical conflicts. Domestically, a series of fiscal policies, including consumption stimulus policies in the fourth quarter, boosted the market, along with the support from lead smelting costs. Compared to the most-traded SHFE lead contract, LME lead experienced a larger decline. This week, the SHFE/LME lead price ratio slightly rebounded, but the import profit/loss of refined lead remained in a loss state, and it is still too early to talk about the export window.

Spot Market

Fundamentals side, both primary lead and secondary refined lead smelters in China stood firm on quotes and were reluctant to sell last week and at the beginning of this week, despite the difficulty in transactions at high premiums. As some small smelters accepted downstream bargaining and sold spot cargo due to their own financial reasons, the spot inventory of primary lead smelters and holders in Hunan, Jiangxi, and Henan was gradually depleted to only 1-2 days, and they no longer accepted premium bargaining adjustments. Additionally, near the end of October, the peak season for battery scrap recycling ended with the peak season for e-bike replacements, and environmental protection inspections affected production reductions, disturbing the supply side of secondary refined lead. With the support of costs, secondary refined lead quotes were higher than primary lead in some regions. The price spread between primary and secondary lead was almost eliminated, and downstream rigid demand shifted to primary lead smelters and social warehouses. After the spread between futures and spot prices narrowed, the trade market preferred spot transactions, with relatively low delivery intentions. In Jiangsu, Zhejiang, and Shanghai, warehouse warrant quotations against the SHFE lead 2411 contract were at a slight discount of 30-50 yuan/mt, but downstream buyers were still cautious and hesitant, resulting in limited actual transaction volumes.

Macro Side

The market still holds high expectations for a 25 basis point interest rate cut by the US Fed in November. The US dollar index fluctuated rangebound, and domestic fiscal stimulus policies continued to boost the market. The price spread between primary lead and secondary refined lead narrowed, with significant cost support for lead prices. Moving forward, attention should be paid to the price decline of battery scrap and the recovery situation after the end of production reductions due to environmental protection. In the short term, lead prices are expected to continue fluctuating rangebound.