SHANGHAI, Jan. 7 (SMM) –LME and SHFE lead prices as well spot prices on SMM #1 lead in China followed similar tracks through the first 11 months in 2012 as described in the chart below. However, LME lead prices departed from the trends of SHFE lead and spot lead prices during December by maintaining a strong position. Lead price movements during 2012 can be divided in the following four stages:
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Stage 1:
Lead prices fluctuated at high levels from January to May 2012, with LME lead prices mainly between USD 2,000-2,200/mt and spot prices on SMM #1 lead at RMB 15,200-16,000/mt. Economic news turned out mixed early last year given the positive European and US manufacturing PMI data which drove up global equities and the deteriorating European debt crisis. Meanwhile, SHFE lead prices were pushed up by longs activity due to the upcoming Chinese New Year holiday by the end of January, but investors’ enthusiasm cooled following the holiday. Besides, as the cold weather accelerated replacement of lead-acid batteries, the increasing lead demand also helped lift lead prices.
Stage 2:
Lead prices plummeted from May to August with LME, SHFE and spot lead prices all hitting new lows for the year due mainly to the dismal economic situation. The European debt issue showed a sign of spreading during the period, dragging the euro to dip to a 22-month low of 1.26 against the dollar. The US nonfarm payrolls were also contracting, signifying an end of the recovery in its employment. Thus, investors scrambled into the US dollar for safe haven, buoying the US dollar index to 82, weighing on base metals. The official and HSBC manufacturing PMI for China both dropped, reflecting the continued slowdown in China’s economy. In China’s spot lead market, both traders and downstream buyers were cautiously purchasing before the traditional high demand season as the falling SHFE lead prices added to risk aversion. Furthermore, the Entrance Requirements for Lead-Acid Battery Industry was released jointly by the Ministry of Industry & Information Technology and the Ministry of Environmental Protection in mid-May, greatly shaken the lead-acid battery industry. Lead demand from small and medium battery producers were affected by this consolidation of battery industry.
Stage 3:
Lead prices slumped after rising initially between mid-August and October. LME lead prices crossed above USD 2,300/mt but then dived to USD 1,980/mt. SMM #1 lead prices also stabilized at RMB 15,800/mt before dropped to around 15,000/mt. The sharp increases in lead prices were the result of positive macroeconomic conditions. Reports about the bond buying program by the European Central Bank and falling bond yields in Spain and Italy indicated eased European debt crisis. Meanwhile, the US retails sales, ISM manufacturing index, nonfarm payrolls were all reported optimistic. Moreover, the QE3 launched by the Fed in mid-September drove the US dollar index to slump from 82 to 78.5, pushing up commodities prices. In China, the National Development & Reform Commission approved a series of investment projects for transportation, raising demand for base metals. Nevertheless, lead prices failed hold firm a high levels as the influence from the QE3 dissipated, and as prices faced technical correction. In addition, spot lead prices were dragged down with high demand season for batteries used in electric vehicles ended earlier.
Stage 4:
LME lead prices remained rather strong from late October through year’s end and rose to a new yearly high of USD 2,499/mt, up 18.03%. Market mainly focused on the US fiscal cliff issue during this period, and the growth in LME lead prices were primarily boosted by market fundamentals. LME lead inventories were down sharply by 33,000 mt in December, and canceled warrants hit a high of 57.3%. SMM spot prices on #1 lead, however, remained below RMB 15,000/mt, as the high inventories at downstream lead-acid battery producers resulted in declining demand for lead. Most battery producers were involved in the price wars and sales promotion by year’s end and were busy depleting existing inventories, leaving lead demand unimproved.
To sum up, LME lead prices staged sharpest movements through 2012 and hit the resistance of USD 2,329/mt twice and finally broke above the level to touch USD 2,346.5/mt in mid-December. LME lead prices were down 34.67% in 2012. SHFE lead prices were slow in both increase and decline and presented a decrease of 16.03% as of year’s end. Spot lead prices in China rarely rose above RMB 16,000/mt in during the past year and were down 8.77% in total.
