SMM Lead Market Daily Review (2013-1-28)

SHANGHAI, Jan. 29 (SMM) – The most active SHFE lead contract price opened lower at RMB 15,295/mt on January 28 due to the negative news from the US and Europe last Friday, and moved fell to RMB 15,245-15,260/mt due to falling LME lead prices. Prices finally ended at RMB 15,245/mt, down RMB 95/mt. Trading volumes slumped 216 lots to 70 lots, while positions were up 2 lots to 2,300 lots.

Cargo holders in China’s spot lead market held quotations firm, expecting downstream buyers to replenish goods ahead of the holiday. Quotations for Chihong Zn & Ge were at RMB 14,860/mt, with spot discounts of RMB 400/mt over the most active SHFE lead contract price. Transactions were rarely made at high prices. Hanjiang and Shenqian were quoted at RMB 14,760/mt and RMB 14,710/mt, respectively. Downstream buyers still purchased goods as needed.

With the approach of the Chinese New Year holiday, many lead-related enterprises plan to close for the holiday in early February. SMM conducted a survey to 30 industry insiders, finding that opinions on whether downstream buyers will replenish stocks in large amounts this week remain diverged.

A majority, or 80%, of industry insiders believe spot lead prices will be little changed but remain between RMB 14,650-14,850/mt this week. Although China’s economic data were reported optimistic, raw materials and finished goods inventories are still high, leaving noticeable decline in replenishments. Besides, the large spot discounts over the most active SHFE lead contract price prompted producers of branded lead to trade goods on the futures market. Thus, transactions in spot lead market were mainly concluded for non-leading brands, giving little support to lead prices. Coupled with replenishments in early January, downstream enterprises will only purchase as needed recently. But smelters’ selling interest should increase in late January, limiting growth in lead prices. In addition, since the releases of US 4Q GDP and nonfarm payrolls, as well as the Fed’s policy meeting are scheduled for this week, most investors will be cautious and book profits given the uncertainty surrounding these risky events. Most market players expect LME lead prices to move around USD 2,360/mt.

The remaining 20% market players are relatively optimistic. As China’s economy presented steady recovery recently, combined with the US and Japan’s easing policies, as well the stabilization of European economy, investor sentiment will be lifted. These investors thus expect LME lead prices to remain high around USD 2,400/mt this week. The positive technical indicators and the US dollar index remaining below 80 will also help bolster LME lead prices. In China’s spot lead market, purchases by downstream enterprises should improve to certain degree this week as the Chinese New Year holiday is only two week away. As such, spot lead prices are expected at RMB 14,700-14,900/mt.