SMM Daily Review - 2012/6/25 Lead Market

SHANGHAI, Jun. 26 (SMM) – On Monday, SHFE lead prices gapped lower at RMB 14,780/mt and moved narrowly between RMB 14,970-14,830/mt due to concerns triggered by the worse-than-expected global economic growth. SHFE lead prices finally closed at RMB 14,970/mt, down RMB 100/mt. Trading volumes were up 58 lots to 266 lots, while positions were down 48 lots to 2,044 lots.

SHFE lead prices moved weakly after opening lower on Monday. In China’s spot markets, spot lead prices fell below RMB 15,000/mt, with Nanfang quoted at RMB 14,980/mt, with premiums of RMB 150/mt against the most active SHFE lead price. Mengzi was quoted at RMB 14,860/mt. Hengchang and Shenqian were quoted at RMB 14,860/mt. Most smelters were not willing to move goods as lead prices fell below their bottom lines. Dealers sold goods at low prices, and buying interest of downstream buyers did not improve with bearish outlook, leaving transactions modest.

With regard to lead prices this coming week, 33% market players were optimistic due mainly to the following reasons. The European Central Bank announced to loosen collateral requirements to enhance financing access of the Euro zone financial system, somewhat easing the pessimism in the market. The EUR 130 billion euro plan agreed by German, French, Italian and Spanish leaders also indicated a favorable turn for the resolution of the European debt crisis. Meanwhile, LME lead prices gained strong support at USD 1,800/mt, with technical indicators showing a sign of upturn. In China’s domestic spot markets, lead prices have dropped below the RMB 15,000/mt mark, so cargo holders were reluctant to move goods, helping support lead prices to certain extent. Thus, lead prices may move above RMB 15,000/mt and hover between RMB 15,000-15,150/mt.

47% market players believe lead prices should move within a narrow band and test RMB 15,000/mt this coming week. Facing the worse-than-expected global economic situations and remaining weak demand, downstream enterprises still purchased as needed during the traditional high-demand season, and most enterprises reacted mildly to the falling lead prices. Meanwhile, smelters primarily maintained production for long-term contracts and only sold spot goods moderately when lead prices rose above cost lines. In addition, stimulus plan expected to be discussed at the EU summit scheduled for this coming week, so LME lead prices should remain fluctuating between USD 1,850-1,900/mt.

The remaining 20% investors were pessimistic, noting that market is now dominated by bearish mood since the market was greatly disappointed by the unresolved European debt issue, the downgrade of ratings of 15 large banks by Moody’s and the evaporated hope for the implementation of QE3 measures. As a result, the US dollar index stood above 82, dragging LME lead prices to move around USD 1,800/mt. In China’s spot markets, some smelters may be more willing to sell goods due to the tight cash flow at month’s end, pulling down spot lead prices against the weak demand. As such, the pessimistic investors expect lead prices should be below RMB 15,000/mt this coming week.