SMM Daily Review - 2012/2/6 Lead Market

SHANGHAI, Feb. 7 (SMM) – On Monday, SHFE lead prices opened higher at RMB 16,265/mt due to the above-expected US employment figures. However, investors’ confidence was depressed as Greece failed to reach any agreement on a new debt deal and EU finance ministers’ meeting was adjourned accordingly. Thus, the US dollar index rose, with SHFE lead prices under pressure at moving averages and finally closing at RMB 16,245/mt, up RMB 170/mt. Trading volumes increased by 28 lots to 242 lots, and positions for SHFE three-month contract decreased by 60 lots to 1,844 lots.

In domestic spot markets, prices remained stable at around RMB 16,000/mt. Quotations for brands such as Jinsha were between RMB 16,050-16,100/mt, with discounts against the SHFE three-month lead price at RMB 180/mt. Lead from Gejiu and brands including Jinli and Wanyang were quoted between RMB 15,900-15,950/mt. Quotations for Nanfang and Chengyuan were rarely reported due to production halts at the companies. With slow recovery at downstream enterprises and the high price at RMB 16,000/mt, limited transactions were done in the market. In the afternoon, lead prices changed little and trading market did not improve.

Last week, the US nonfarm payrolls were reported to rise by 243,000 and its January unemployment rate fell to 8.3%, the lowest level since February 2009, driving base metals prices up generally. The above-expected employment figures boosted market confidence to recovery of US economy. As such, 20% of markets players are bullish towards the market for the coming week, believing lead prices may edge up with downstream enterprises resuming production following the Lantern Festival. But the increase will be limited with spot prices expected to rise and stabilize at RMB 16,000/mt.

Despite the positive US economic data, 33.3% of market players still hold that lead prices may be under pressure below the RMB 16,000/mt mark. As the European finance ministers’ meeting was adjourned and since market was still waiting for the result of Greek debt talks, concerns over the eurozone economy recurred. On the other hand, although SHFE lead prices moved up influenced by LME lead prices, transactions in China’s domestic spot markets were limited due to weak demand caused by slow recovery at downstream enterprises. Prices for domestic well-known brands over the most active SHFE lead contract price expanded from RMB 50/mt in late January to RMB 180/mt, reflecting gloomy spot markets. In this context, prices are not likely to rise.

The remaining 46.7% believe lead prices will continue to fluctuate around RMB 16,000/mt this coming week. Both improved PMI data for major economies and increased US employment figures are positive news for the market. With respect to China’s domestic markets, however, spot transactions are modest with spot discounts over SHFE lead prices expanding continually. The supply surplus is not likely to ease despite production halts at smelters in Guangxi. As such, prices are not expected to rise with resistance at the RMB 16,000/mt mark.