SMM Daily Review - 2011/8/29 Lead Market

SHANGHAI, Aug. 30 (SMM) -- Boosted by soaring LME lead prices last Friday, SHFE lead prices opened slightly higher at RMB 16,895/mt on Monday, but later fell back due to a lack of upward momentum. SHFE lead prices mainly fluctuated between RMB 16,830-16,870/mt on Monday, and finally closed at RMB 16,860/mt. Trading volumes fell by 12 lots to 638 lots, while positions increased by 28 lots to 4,160 lots. Although LME lead prices made strong gains last Friday, long investors on the SHFE market remained cautious.

As SHFE lead prices fell back after opening higher, traded prices for domestic well-known branded lead like Chihong Zn&Ge and Nanfang were mainly between RMB 16,380-16,400/mt, with discounts of negative RMB 450-480/mt against SHFE 1110 lead contract prices, while offers for other brands like Hanjiang were RMB 16,300/mt. Downstream buying interest remained low, keeping trading sentiment quiet. Spot lead prices were little changed in the afternoon, and market sentiment remained sluggish as well.

With regard to lead price trends this week, market sentiment improved. 66.7% of market players are optimistic. The Federal Reserve Chairman Bernanke did not announce QE3 last Friday, but he hinted the Fed will make relative stimulus policies at its September meeting. Although LME lead inventories jumped by 3,200 mt last Friday, a discount for cash over LME three-month lead prices changed from negative USD 6/mt to positive USD 3/mt, a signal of improving demand. LME lead prices surged to USD 2,400/mt last Friday, and SMM predicts LME lead prices will rebound, but with increases moderate. Domestic refined lead consumption improved gradually, and some downstream processors built inventories when lead prices were around RMB 16,300/mt. SHFE lead inventories fell again by 8,000 mt last week. SMM predicts domestic lead prices will stand above RMB 16,500/mt this week.

The remaining 33.3% market players believe zinc prices will move around RMB 16,300/mt. US GDP for the second quarter was up 1%, lower than forecasts, representing a weakening economy. China’s central bank ordered commercial banks to increase their reserves on September 5th, which will put intensive capital pressure on enterprises. Although smelters will increase goods supply to generate cash despite an optimistic outlook, downstream buyers will be cautious as they have built stocks previously. In general, SMM predicts SHFE lead prices will fluctuate in a narrow band.