SMM Daily Review - 2012/2/27 Lead Market

SHANGHAI, Feb. 28 (SMM) – On Monday, SHFE lead prices opened at RMB 16,150/mt and fell after rising first. In the afternoon, SHFE lead prices moved above the moving averages and touched a high of RMB 16,195/mt due to the rise in both domestic stocks and LME lead prices. However, prices fell later as the US dollar index increased and surrendered earlier gains to finally close at RMB 16,130/mt, up RMB 145/mt. Trading volumes increased by 66 lots to 478 lots and positions were down 108 to 1,916 lots.

In China’s domestic spot markets, quotation for well-known brands such as Chihong Zn & Ge and Nanfang were between RMB 15,960-15,980/mt, with discounts against the most active SHFE lead contract price at RMB 150/mt. Quotations for other brands such as Baiyin and Shenqian lead from Fujian were at RMB 15,880-15,900/mt. In the afternoon, SHFE lead prices rose to move above the moving averages, and quotations for Chihong Zn & Ge were up RMB 20/mt, but traded prices were still at RMB 15,960/mt. Smelters were cautiously moving goods over bullish outlook, while downstream buyers were not willing to buy due to higher prices, leaving transactions muted.

With respect to lead price this week, 67% of market players were optimistic, believing lead prices will continue to rise and move above RMB 16,200/mt this week. Greek cabinet approved the debt restructuring plan earlier, raising market confidence. As a result, euro hit the new high against the US dollar since December 2011 with the US dollar index dipping to 78.22, the lowest point since early December. Besides, both US employment data and February Kansas Fed manufacturing index were reported above expectations, and index of Germany’s business climate released last Thursday climbed to 109.6, the highest level since April 2011. The stable recovery of US economy and promising prospect of German economy boosted market sentiments, and will accordingly push up base metal prices. In addition, the turmoil in Iran drove the gold and oil prices up, which will also help support base metal markets. On the other hand, China’s domestic stocks surged above 2400 points, also shoring up the base metal prices. In addition to these, pollution incidents pertaining to heavy metals were frequently reported from domestic smelters. Although not all smelters were closed, the serial incidents were sending a signal of decreasing lead supply. In addition to these, some smelters in Yunnan cut production significantly will also lead to a fall in lead supply, giving certain support to lead price.

The remaining 33% hold that there’s a possibility for lead prices to fall after the surge. Although lead prices may be driven up in short term due to the rising domestic stocks and the falling US dollar index, unfavorable factors still exist. Base metals rallied generally since the Greek bailout was approved early last week. However, with the influence of this positive news fading away, no further favorable news is expected to promote base metals in the near term. Besides, as Fitch Ratings further downgraded ratings for Greece and the EU cut GDP growth forecast from 0.5% to -0.3%, commodity consumption is not likely to improve given the sluggish global economy. Thus, global economic recovery remains to be a major concern in the market. Despite the persistent recovery of US and German economy, the economic outlook in most countries is still not optimistic, leaving weak purchasing power. On the other hand, downstream consumption in China’s domestic markets is recovering slowly as the peak-demand season for ignition lead-acid batteries comes to an end. Thus, refined lead inventories have kept increasing following the Chinese New Year holiday. Refined lead inventories in Nanchu and Shanghai exceeded 100,000 mt, much higher than the pre-holiday inventories, posing resistance for lead prices to increase. In this context, these market players believe lead prices will not likely increase this week and may fluctuate between RMB 15,500-16,200/mt.