SHANGHAI, Sept. 18 (SMM) – On Monday, SHFE 1211 lead contract become the most traded one. Although LME lead prices climbed USD 73/mt overnight, the over 2% decline in Chinese stock markets dragged SHFE 1211 lead contract price to RMB 16,150-16,200/mt after opening at RMB 16,195/mt. In the afternoon, prices dropped further to RMB 16,050-16,150/mt, and finally closed at RMB 16,100/mt, down RMB 100/mt. Trading volumes were 196 lots, and positions increased 68 lots to 1,230 lots.
Spot lead prices in China’s domestic markets edged down from the previous trading day. Jinsha was traded at RMB 15,830-15,840/mt, with spot discounts of RMB 330-340/mt.over the most active SHFE lead price. Prices for Hanjiang were around RMB 15,800/mt, while Dongling was traded between RMB 15,740-15,760/mt. Smelters were aggressively moving goods, but downstream buyers were unwilling to purchase fearing prices may fall further. Spot discounts over the SHFE current month lead contract price remained large with SHFE lead prices climbing rapidly recently while spot lead prices showed limited increase due to weak consumption downstream.
Based on an SMM survey of 30 industry insiders, 20% optimistic investors expect spot lead prices should stand above RMB 16,000/mt this week, as LME lead prices will test USD 2,300/mt and SHFE 1211 lead contract, the most traded one, will touch a high of RMB 16,500/mt. Last week, the Fed officially introduced QE3, combined with the unlimited sterilized bond-buying program announced by European Central Bank earlier, concrete progresses have been made for top two factors negatively affecting markets – the US economic slowdown and the European debt crisis. Thus, the bullish mood in the market should remain for some time. Besides, the launch of QE3, according to optimists, is expected to exert positive influence to market for long, since the Fed’s plan to buy bonds worth USD 85 billion each month will increase supply of dollars, which will weigh on the US dollar index and buoy LME lead prices. In China’s spot markets, lead-acid batteries will enter traditional peak demand season which normally starts in September due to cooler weather. Therefore, many distributors will be actively stockpiling batteries, fearing battery prices may increase. This will give a rise to operating rates at battery producers, and thus prop up demand for lead ingots.
20% of market players were pessimistic, believing LME lead prices should fall below RMB 2,200/mt and the most active SHFE lead price will be around RMB 16,000/mt this week, dragging spot lead prices to RMB 15,500/mt. These market players note that the influence from QE3 has gradually dissipated, and market lacks support from any vital news this week. LME lead prices have gained as much as 15% since the start of September, while SHFE lead and spot lead also presented 6.5% and 4.5% increases, leaving more room for shorts. In addition, China’s CPI growth returned above 2% in August, suggesting higher inflation, and the PPI dropped 3.5% YoY, a 34-month low. Under this situation, China’s stimulus policies, which are urgently needed, will be impeded by the country’s inflationary pressures. With regard to market fundamentals, demand for lead-acid batteries remains unimproved at present, as many electric vehicle battery producers still lowered battery prices against the rises of lead prices. In this context, lead prices are in lack of support from market demand.
The remaining 62% investors believe lead prices should fluctuate at highs with LME lead at USD 2,200-2,250/mt, SHFE lead prices at RMB 16,000-16,200/mt, and spot lead prices between RMB 15,700-15,800/mt. On one hand, no important news is expected to be released following the QE3, leaving no impetus for prices to rise further. On the other, LME lead inventories fell for five straight days last week to 293,200 mt, down 10,250 mt and hitting the lowest level this year. This may offer strong support to LME lead prices, and SHFE lead prices and spot lead prices, influenced by LME lead prices, should keep fluctuating this week should domestic market show no substantial changes.