SMM Daily Review - 2011/11/14 Lead Market

SHANGHAI, Nov. 15 (SMM) – SHFE 1112 lead prices opened RMB 300/mt higher at RMB 15,200/mt on Monday due to a surge in LME lead prices overnight. Later, prices were driven to rise by longs and touched RMB 15,620/mt at around 11: 00 a.m. with rising domestic stock market. In the afternoon, SHFE lead prices continued to increase and closed at RMB 15,520/mt, up RMB 610/mt, or 4%. Trading volumes decreased slightly by 20 lots to 454 lots, and positions dropped by 134 lots to 1,848 lots, with short covering reaching 4.4%, which also contributed to the rise in SHFE lead prices.

On Monday, SHFE lead prices fluctuated upward after opening higher. In domestic spot markets, quotations for well-known brands such as Nanfang, Chihong Zn & Ge, and Yuguang were between RMB 15,400-15,470/mt, up around RMB 400/mt compared to last Friday. In the afternoon, branded lead prices dropped slightly due to still weak demand. Quotations for brands including Shuangyan were at around RMB 15,450/mt, with discounts over SHFE 1112 lead contract prices at negative RMB 50/mt. Transactions turned quiet with wait-and-see sentiment.

With regard to lead price trends this week, optimistic and pessimistic insiders are 50% and 50%. The pessimistic market players believe that Greek and Italian prime ministers resigned, Italy’s 10-year government bond yields were steady below 7%, and the Italian Senate passed the budget bill for 2012, all helping improve the hope in resolving European debt crisis. Besides, good news from the US was reported, and China’s Central Bank released data for credit loans to show some banks loosened credit loans. In this context, SHFE lead prices are expected to rebound. In domestic spot markets, smelters are unwilling to sell goods as prices are lower than they can accept, and smelters in Yunnan are more unwilling to sell goods due to power restrictions. As a result, SHFE lead prices should move between RMB 15,200-15,800/mt this week.

The remaining investors are cautious, believing European debt crisis will continue. In addition, market fundamental of lead has not improved, with lead ingot supply surplus, and with LME and SHFE inventories remaining at high levels. LME canceled warrants hovered at 20,000 mt, and will unlikely increase. Traders are pessimistic, and have low stocks to supply to downstream buyers. They only maintain inventories at normal levels to reduce risk. Downstream battery producers have not reach full capacity although environmental protection inspections had ended, and the seasonal high demand period for electric bicycles has not neared, while domestic spot consumption is still weak, with transactions quiet. SHFE lead prices should fluctuate around RMB 15,000/mt level this week.