SHANGHAI, Feb. 19 (SMM) –Demand for domestic spot lead failed to pick up after the Chinese New Year holiday, offsetting positive impact from rising LME lead prices last Friday. SHFE 1304 lead contract prices jumped to near RMB 15,360/mt after opening lower at RMB 15,275/mt on February 18. Later, both the Shanghai Composite Index and LME lead prices were disappointing, causing SHFE lead prices to stagnate at RMB 15,320-15,360/mt. Finally, the most active SHFE lead contract ended the day down RMB 60/mt at RMB 15,330/mt. Trading volumes increased 230 lots to 270 lots, while positions decreased 22 lots to 2,444 lots.
SHFE lead prices remained weak on the first trading day after the Chinese New Year. Holiday sentiment remained strong in spot lead markets. Chihong Zn & Ge was quoted at RMB 14,940/mt, a discount of RMB 400/mt over SHFE 1304 lead contract prices. Quotations were RMB 14,900/mt for Hanjiang and Dongling, and RMB 14,830/mt for Shenqian. No massive downstream restocking was reported, with only a few lead-acid battery producers purchasing as needed. Cargo holders generally stood on the sidelines, depressing overall trading. Market was quiet in the afternoon.
LME lead prices mostly hovered at high levels during the Chinese New Year holiday. Market players are divided about their expectations for stock replenishment by lead-acid battery producers after the holiday.
An overwhelming majority (80%) of market players believe spot lead markets will not return to normal until the Chinese Lantern Festival. Although smelters remained in operation during the holiday, some of their goods are sold in the form of long-term contracts and others were ordered before the holiday by downstream producers, helping ease post-holiday oversupply pressure. On demand side, SMM’s survey of medium and large downstream producers has found that workers will return to work in the middle of the week and post-holiday orders are little changed from pre-holiday levels. Surveyed producers generally purchase as needed. In this context, spot lead prices will likely hover between RMB 14,800-14,950/mt. As regards macro news, the US Democratic and Republican parties will continue their budget negotiations. Italian general election is due this weekend, keeping investors cautious. SMM thus expects LME lead to hover around USD 2,430/mt.
13% market players are optimistic towards post-holiday spot lead prices. They believe Chinese investors will return to market now that the holiday is over, which will push up purchases of LME lead. Besides, KDJ indicator is pointing upwardly and LME lead inventories keep falling, which will send LME lead prices up to USD 2,450/mt. In spot markets, lead-acid battery producers built up limited stocks before the holiday, so restocking is expected to increase this week. This will help spot lead rise to RMB 15,000/mt.
The remaining 7% are bearish towards lead prices this week. Most base metals on the LME were weak during the holiday. Base metals on the SHFE and the Shanghai Composite Index declined on the first trading day after the holiday, hurting market confidence again. The US dollar index kept rebounding during the holiday, and this will drag LME lead down to near USD 2,400/mt. In spot markets, holiday sentiment continues to dominate the market. Consumption by lead-acid battery producers will diminish with the arrival of spring. With the expansion of large lead-acid battery producers following earlier environmental inspection, price war will escalate. Mounting lead inventories in both domestic spot and futures markets will keep lead prices in check. Spot lead is expected to be traded at RMB 14,750-14,850/mt.