Macro Impact Fades, Lead Market Trading Logic Returns to Fundamentals [SMM Lead Morning Comment]

Last Friday, LME lead opened at $2,031.5/mt. After the release of favourable macro front, most base metals returned to fundamentals, with non-ferrous metals generally jumping initially and then pulling back. Especially during the European session, the US dollar index strengthened, and LME lead once fell to $2,022/mt, finally closing at $2,023.5/mt, down 0.66%.

Last Friday, the most-traded SHFE lead 2412 contract opened at 16,855 yuan/mt. With the increase in lead ingot inventory, SHFE lead shifted from daytime strength to fluctuating downward, with the overall operating focus moving downward, finally closing at 16,805 yuan/mt, down 0.47%. Its open interest was 43,633 lots, down 813 lots from the previous trading day.

Macro side, the Standing Committee of the National People's Congress approved an increase of 6 trillion yuan in local government debt limit to replace existing implicit debt. Lan Foan stated that the debt resolution approach has fundamentally changed, directly increasing local debt resolution resources by 10 trillion yuan, with the new 6 trillion yuan local debt limit arranged over three years. China's CPI in October rose 0.3% YoY, down MoM, while PPI YoY decline expanded to 2.9%. According to media supervised by the Ministry of Housing and Urban-Rural Development, the real estate market has initially stopped declining, but the "dammed lake" phenomenon still needs to be eliminated. After the US Fed's interest rate cut, the first wave of high-ranking officials' speeches indicated that a stronger economy means fewer interest rate cuts.

Fundamentals side, recently, social inventory of lead ingots increased, while smelter inventory decreased, reducing market circulating supply. Both primary lead and secondary lead tended to trade at a premium (to SMM 1# lead average price). Moving forward, we need to pay attention to the risk of significant inventory increase due to lead ingot transfer and warehouse delivery, and also monitor the resumption of secondary lead enterprises after the lifting of environmental protection factors, being cautious of the risk of lead prices jumping initially and then pulling back.