SMM Lead Market Daily Review (2013-2-25)

SHANGHAI, Feb. 26 (SMM) – Market concerns over future demand and sharp decline in base metal prices last Friday resulted in significant decrease in positions for the most active SHFE lead contract, with price opening lower on Monday and hovered t RMB 14,970-15,050/mt. SHFE lead prices ended RMB 60/mt higher at RMB 15,175/mt due to the increase in domestic stocks, with resistance at the 5-day moving average. Trading volumes were down 204 lots to 196 lots, while positions were down 78 lots to 2,254 lots.

SHFE lead prices moved lower with spot lead prices in China also falling. Quotations for Chihong Zn & Ge were around RMB 14,860/mt, with spot discounts over the most active SHFE lead price narrowing to RMB 140/mt, driving some arbitrage traders to book profits. Dongling and Hanjiang were quoted at RMB 14,740/mt. Quotations for Shenqian were at RMB 14,700/mt. Downstream buying interest remained unimproved, leaving trading muted.

According to SMM’s survey of 30 industry insiders, most of them believe lead prices should continue to fluctuate or move down this week.

60% market players expect lead prices to start correction this week considering the 4% slump in LME lead prices last week. News from Europe will unlikely exert great influence on LME lead as no important policies are expected this week. In the US, economy still presents a mild recovery despite the upcoming automatic spending cuts. In China, although the February HSBC PMI was below expectation and at a 4-month low, the figure remained above 50 which signified the expansion in manufacturing sectors and the modest economic recovery. Besides, the forthcoming NPC and CPPCC sessions will also give a boost to domestic stock markets. Technical indicators pointed to an upward trend, combined with the strong support at USD 2,300/mt and limited upward room for the US dollar index following the strong rebound, LME lead prices are expected to move between USD 2,300-2,340/mt. In domestic spot lead market, most cargo holders without great financing pressure plan to hold prices high, while downstream enterprises will resume production after the Lantern Festival. Thus, downstream consumption may pick up slightly but demand will not fully recover, with spot prices expected to hover between RMB 14,700-14,850/mt.

The remaining 40% market players are relatively pessimistic, believing LME lead prices may fall below USD 2,300/mt this week and spot lead will possibly be traded at as low as RMB 14,650-14,800/mt. Automatic spending cuts which will come in effect on March 1 and the reports about a premature termination of the easing policies in the US caused the US dollar index to keep climbing and to probably hit as high as 82 this week. The euro zone manufacturing and service PMI data fell unexpectedly in February, combined with the uncertainty surrounding the Italian election, risk aversion is on the rise. In addition, poor sales at domestic lead-acid battery producers will undermine producers’ interest in purchasing raw materials after the holiday although many of them will restart operation after the Lantern Festival, so some downstream enterprises are expected to put off replenishing schedule to March.