SMM Lead Market Daily Review (2012-10-15)

SHANGHAI, Oct. 16 (SMM) – SHFE lead prices opened RMB 120/mt lower at RMB 15,700/mt on Monday. In the morning session, China’s September CPI was reportedly up 1.9%, and PPI down 3.6%, within market expectation. SHFE lead prices moved around RMB 15,690/mt with trading light. At midday, as LME lead prices and Chinese stocks fell further, adding to selling pressures on SHFE lead and driving prices to dip as low as RMB 15,650/mt and to finally end at RMB 15,690/mt, down RMB 130/mt or nearly 1% from the previous trading day. Trading volumes increased 58 lots to 312 lots, and positions were down 28 lots to 1,220 lots.

In China’s domestic spot markets, well-known brands including Chihong Zn & Ge and Shuangyan were mainly quoted at RMB 15,520-15,550/mt, with spot discounts over the most active SHFE lead contract price narrowing to RMB 180-200/mt. Quotations for Dongling, Hanjiang, and Mengzi were around RMB 15,470/mt, and Shenqian was quoted at RMB 15,450/mt. Downstream consumption was sluggish. Most market players were on the sidelines with numerous risk events within the week, leaving transactions thin.

Regarding to lead price movements this week, a majority of the 30 industry insiders surveyed by SMM presented pessimistic attitude. 73% of them believe spot lead prices may dip as low as RMB 15,300/mt, with LME lead prices expected to touch the 60-day moving average and the 1212 SHFE lead contract price to fall to RMB 15,500/mt. Spot lead market has been quiet recently. Orders for downstream enterprises were poor and most enterprises were bearish as high demand season for motive lead-acid batteries ended while peak season for ignition has yet to come. This has dampened downstream buying interest. On the other hand, as shorts are still the majority after the implementation of QE3 with market concerns still intensifying. In response, LME lead prices fell again after two weeks of increases. Confidence among euro zone consumers and businesses slipped for the sixth month in a row, and economy of major euro zone nations continued to weaken. In addition, S&P’s downgrade of Spain’s credit rating ignited market concerns over further downturn of the euro zone economy. China’s economy also saw no noticeable improvement.

The remaining 27% market players expect market to remain wary before the release of China’s 3Q GDP data and the EU summit. Although consumption in China’s spot lead market remained sluggish and LME lead inventories staged the sharpest increase since late September of last year, some investors believe China should launch stimulus policies against the persistent weakness. Most smelters held prices firm with anticipation that orders for lead-acid batteries will increase in 4Q, a peak demand season for batteries. Meanwhile, goods news was reported from the US, as consumer confidence index hit new high and unemployment rate dropped surprisingly, which indicated the turnaround in the US economy, although some were skeptical toward the figures. Thus, these investors expect spot lead prices to remain around RMB 15,500/mt, with LME lead pries testing the 5-day moving average and SHFE lead prices moving between USD 2,150-2,200/mt.