SMM Daily Review - 2011/12/19 Lead Market

SHANGHAI, Dec. 20 (SMM) – On Monday, SHFE 1202 lead contract fell sharply after opening at RMB 15,205/mt. Then prices gained support at RMB 15,070/mt level briefly and fluctuated between RMB 15,070-15,110/mt. In the afternoon, SHFE lead prices rose and touched RMB 15,230/mt due to rebound in domestic stock market, but met resistance at the 5-day moving average for the lack of upward momentum, and moved between RMB 15,110-15,150/mt. Prices finally closed at RMB 15,100/mt, down RMB 200/mt, or 1.3%. Trading volumes increased by 102 lots to 652 lots, and positions increased by 112 lots to 1,420 lots.

In domestic spot markets, downstream buyers were actively buying goods at lower prices, but supply in the market was tight as smelters were reluctant to move goods. Quotations for well-known brands such as Nanfang, Chihong Zn & Ge were around RMB 15,200/mt, and other brands such as Jingui were traded between RMB 15,100-15,120/mt. In the afternoon, quotations were rarely reported in the market and transactions were quiet in general.

With regard to lead price trends, about 67% of market players believe SHFE lead prices should fluctuate between RMB 15,000-15,500/mt this week. Despite the passage of austerity measures in Italy and Germany boosted market confidence, the three rating agencies are pessimistic towards the economic outlook of eurozone countries, depressing the market. Investors remain cautious. In domestic spot markets, smelters are unwilling to sell goods due to unfavorable prices, while buyers generally purchase on an as-needed basis due to year-end cash problems.

Approximately 27% are pessimistic, believing whether EU would release effective plan to resolve the debt crisis will be the focus of markets, but market confidence faded after the EU summit ended. Besides, spot demand is weak as discounts over LME lead prices remain between USD 16-18/mt, showing no sign of narrowing. SHFE lead prices should move between RMB 14,800-15,300/mt this week.

The remaining 6% are optimistic, believing the EU is making efforts to resolve European debt crisis, though the issue has negatively affected the market for long. US manufacturing data and jobless claims were both better than expected, easing global concerns. Besides, as both LME and domestic spot inventories fell, plus the obvious low selling interest from smelters and decreasing inventory turnover of middlemen, lead prices may gain certain support. As a result, lead prices may rebound slightly this week and spot lead prices should move between RMB 15,400-15,800/mt.