SMM Daily Review - 2012/5/14 Lead Market

SHANGHAI, May 15 (SMM) – Although China declared to lower banks’ reserve requirement ratio starting May 18, market concerns remained. SHFE lead prices opened at RMB 15,700/mt Monday and edged up after hitting a low of RMB 15,400/mt. At midday, SHFE lead prices moved around RMB 15,600/mt but fell in the afternoon due to the declines in domestic stocks and LME lead prices, to finally close at RMB 15,530/mt, down RMB 70/mt. Trading volumes were up 114 lots to 378 lots, and positions increased by 42 lots to 1,034 lots.

On Monday, SHFE lead prices kept falling after opening and moved around RMB 15,600/mt. In China’s domestic spot markets, trading was light on bearish outlook. Quotations for well-known brands such as Chihong Zn & Ge, Chengyuan, and Nanfang were mainly between RMB 15,530-15,560/mt, with discounts of RMB 40-60/mt over the most active SHFE lead contract price. Brands from Gejiu region were quoted around RMB 15,380/mt.

Given the soft consumption in lead-acid battery market, the diverged opinions among market players with regard to lead price this week are mainly based on the viewpoints on macroeconomic conditions. 

13% of market players believe the report of China’s RRR cut will release liquidity against the backdrop of current slowdown in economic growth, so as to benefit the domestic stock markets and lead futures. In addition, the Michigan consumer confidence index for May hit a high since January 2008, also helping ease the bearish mood in the market. Meanwhile, LME lead inventories have fallen by 8,575 mt since May, with the proportion of canceled warrants remaining high at 23.18%. These may all help support SHFE lead prices, and there is little chance for SHFE lead prices to drop below the RMB 15,400/mt level. In China’s domestic spot market, smelters will limit sales due to low prices, with spot prices expected between RMB 15,600-15,700/mt.

87% of investors are relatively cautious, holding that the European debt issue is not likely to be resolved in the near term with leaders paying more attention to the unstable political situation in Europe. Combined with a US dollar index hovering around 80, LME lead prices will be weighed down. In spot markets, since long-term contracts take up over half of sales, smelters may limit sales if lead prices remain low on account of little financial and inventory pressure and the staying high costs. Besides, lead-acid battery producers will only purchase on an as-needed basis due to weak demand. Meanwhile, since lead from Gejiu region was quoted as low as RMB 15,400/mt, prices for branded lead may not increase sharply. Thus, lead prices are expected to be between RMB 15,450-15,600/mt this week.