SMM Daily Review - 2011/11/21 Lead Market

SHANGHAI, Nov.22 (SMM)–SHFE lead prices opened RMB 350/mt higher at RMB 15,250/mt on Monday due to the rising LME lead prices, and gained support at the 10 and 20-day moving average. Prices then moved around the daily moving average between RMB 15,320-15,380/mt, and finally closed at RMB 15,350/mt, up RMB 120/mt. Trading volumes decreased by 124 lots to 446 lots, and positions increased by 60 lots to 1,964 lots, with 4.9% of positions built by longs.

SHFE lead prices moved around the moving average after opening high on Monday. Traded prices of domestic well-known brands such as Nanfang and Chihong Zn & Ge were between RMB 15,380-15,400/mt, with premiums against SHFE 1201 lead contract prices of RMB 30-50/mt, and other lead brands such as Baiyin were mainly traded around RMB 15,330/mt. In the afternoon, SHFE lead prices continued to move around daily moving average and spot prices basically remained unchanged from morning levels. Smelters were selling goods in small amount and sticking to the prices. Both buyers and traders were standing on the sidelines, leaving transactions modest.

With regard to lead price trends this week, 40% market players are cautious, believing spot lead prices should remain fluctuating between RMB 15,200-15,400/mt. Currently, prices of both domestic and imported lead concentrate remain high, adding to smelting costs. With sluggish lead prices, lead smelters showed lower selling interest. On the other hand, purchases from downstream buyers did not improve as the seasonal high demand period did not come yet, especially SMEs lead battery producers, which generally purchased on an as-needed basis, keeping both supply and demand low. Now, lead prices are mainly affected by macroeconomic news, with positive US economic news released but pessimism from the lingering European debt crisis. Besides, markets remain cautious towards whether or not the US Congress will reach an agreement on USD 1.2 trillion in deficit cuts by Nov. 23.

The remaining 60% are optimistic, believing the market will be boosted due to positive US economic data and since the index of US leading indicator grew for a sixth consecutive month. Concerns over European debt crisis eased due to rumors that European Central Bank will lend loans to the IMF to support Euro zone. In addition, LME inventories continued to fall since early November, down 12,850 mt by last Friday, to 374,950 mt. Due to low lead prices, some smelters cut output of lead, only maintaining production for long-term contracts. As a result, spot lead prices are expected to be RMB 15,400-15,600/mt.