SMM Daily Review - 2011/9/19 Lead Market

SHANGHAI, Sept. 20 (SMM) -- SHFE lead prices fell to RMB 16,000/mt after opening, and later slipped further below RMB 16,000/mt dragged down by falling stock markets, with prices mainly moving around RMB 15,950/mt. As long investors exited the market, SHFE lead prices plummeted again, with prices finally closing at RMB 15,900/mt, down RMB 425/mt or 2.6%. Trading volumes increased by 146/mt to 374 lots, while positions declined by 206 lots to 2,562 lots. SHFE lead market was extremely weak, and positions for SHFE 1111 lead contract only increased by 114 lots and SHFE 1110 lead contracts remained the most actively traded contracts, an indication of a lack of market confidence.

As SHFE lead prices slipped further after falling below RMB 16,000/mt, spot lead prices fell below RMB 16,000/mt in response. Quotations for domestic well-known branded lead like Chihong Zn & Ge, Yuguang, Nanfang and Chengyuan were between RMB 15,850-15,930/mt, with discounts of negative RMB 50-150/mt against SHFE 1110 lead contract prices. Smelters were reluctant to move goods with prices below RMB 16,000/mt, but hedged goods flowed into spot markets, and supply of well-known branded lead increased. No quotations for other brands were heard in the market. Trading sentiment was cautious in the morning when SHFE lead prices tumbled, and domestic spot lead prices dipped further to RMB 15,800/mt in the afternoon. Downstream consumers made purchases at lower prices, slightly improving trading sentiment. 

With regard to lead price trends this week, 33.3% market players believe lead prices should fall. The European debt crisis continues, and concerns over global economic recovery exacerbate, and the US dollar index fluctuates at high levels; more lead-acid battery producers in Shanghai and Jiangsu suspended production, causing lead demand to fall. In this context, domestic spot lead prices should fall to RMB 15,800/mt.

26.7% market players are optimistic, believing the US Fed policy meeting taking place this week will issue some easing monetary policies, which will boost base metal prices. Although demand fell due to domestic environmental protection inspections, smelters were holding goods at prices below RMB 16,000/mt, so lead prices should rally to the RMB 16,000/mt level.

The remaining 40% believe lead prices should move around RMB 15,900/mt. The US Fed policy meeting to be held this week may report some positive news, but QE3 will not likely be announced, with European debt crisis still the market focus. Although smelters are holding goods, goods supply available is not tight as some other traders are still selling goods, while demand from downstream enterprises weakens due to environmental protection inspections.