Lead Market Faces Raw Material Shortage and Weak Consumption [Institutional Commentary]

Market: Last week, lead prices remained low, with scrap batteries in undersupply, and secondary lead smelters facing significant losses. Expectations for production cuts strengthened, supporting SHFE lead to stabilize at 16,300 yuan/mt and rebound. However, the upside potential for SHFE lead is limited during the off-season, with limited trading interest. Weighted open interest fluctuated around 76,000 lots, and the settled funds were less than 1.2 billion yuan.

Spot and Supply: Last week, lead concentrate TC remained low and stable, while the tight supply of scrap batteries intensified further. Primary lead smelters remained profitable, but secondary lead smelters faced increased losses. Coupled with insufficient raw materials at some smelters, the number of enterprises cutting production increased, and expectations for further production cuts in the future rose. SMM's weekly operating rate for primary lead increased by 1.24 pct MoM to 63.25%, while the weekly operating rate for secondary lead decreased by 4.54 pct MoM to 56.55%. In some regions, the price of primary lead and scrap inverted. As delivery sources gradually flowed out and lead prices rebounded from lows, the price difference between primary lead and scrap gradually widened to 75 yuan/mt. LME lead inventories increased to 282,000 mt. In the week of April 11, the net short positions of investment funds increased by over 6,000 lots MoM to 22,000 lots. The overseas market remained dominated by bears, with the domestic market outperforming the overseas market. The US dollar index continued to decline, and expectations for the opening of the lead spot import window remained strong.

Consumption: Last week, SMM's operating rate for lead-acid batteries decreased by 0.74 pct MoM to 72.5%. The off-season performance in consumption was prominent, with some battery companies cutting production or taking holidays to reduce finished product inventories. As the May Day holiday approaches, downstream stockpiling provided short-term support for SHFE lead. However, under the cumulative impact of tariffs, order pressure for related export enterprises became more apparent.

Trend: The tug-of-war between costs and consumption continues, with SHFE lead expected to remain volatile. Continued tracking of smelter dynamics and the SHFE/LME price ratio is recommended.