SHANGHAI, Mar. 26 (SMM) – Boosted by LME base metal price hike, SHFE lead prices opened high at RMB 14,540/mt on Monday. During the morning trading session, SHFE lead prices fluctuated narrowly around RMB 14,530/mt, but surged 11% to RMB 14,530/mt driven by long power. However, Shanghai Composite Index fell slightly, curbing increase in SHFE lead prices. Finally, LME lead prices closed at RMB 14,585/mt, up RMB 85/mt from a day earlier. Trading volumes reduced by 20 lots to 86 lots. Positions increased by 8 lots to 2,106 lots.
Prices fluctuation in Shanghai spot lead market was limited. Prices for famous brand lead were offered between RMB 14,450-14,460/mt, with discounts over most active SHFE lead contract around RMB 80/mt. Quotes for other brands were around RMB 14,430/mt. Although the draft agreement on Cyprus bailout was reached, downstream demand for lead is hard to improve. Therefore, lead prices are unlikely to fluctuate much and purchases will still be on as-needed basis.
Cyprus voted in favor of capital controls and national solidarity fund last weekend, temporarily alleviating market worries. In this context, base metals prices stopped falling and rose on Monday. SMM has conducted a survey on 30 domestic market players on whether this wave of price increase will sustain and its impact on lead prices.
An overwhelming majority (87%) of market players believe LME lead prices will unlikely rise appreciably since Cyprus has reached an agreement only on the rescue draft. Besides, business confidence in Germany fell for the first time in five months. The Fitch has put the UK’s AAA rating on negative watch. Negative news from the euro zone has kept investors cautious. Therefore, LME lead prices should move within USD 2,180-2,200/mt this week. A seasonally low-demand period for lead-acid batteries has come following unusually sluggish consumption in traditionally high-demand season. As such, most believe lead-acid battery producers will have little buying interest against poor orders. Prices of SMM #1 lead averaged RMB 14,570/mt in March, down RMB 250/mt MoM. Inventories were high at lead smelters since they were reluctant to sell at lows. Smelters will be forced to sell at discounts this week against liquidity crunch at the month’s end and in order to fulfill sales target. Growing supply will further erode upward momentum of spot lead prices. Spot lead is expected to trade between RMB 14,400-14,500/mt this week, virtually unchanged from a week earlier.
The remaining 13% are relatively optimistic for three reasons. First, risk aversion will diminish as Cyprus is coming closer to secure bailout funds. Second, the jobless claims recently announced by the US hit a 5-year low. Third, the KDJ indicator of the Shanghai Composite Index is pointing upwardly, a sign that further rise is on the horizon. In this context, LME lead prices should advance to USD 2,200/mt this week. According to the China Nonferrous Metals Industry Association (CNIA), lead concentrate output in China dropped 15.9% YoY to 323,980 mt during January-February this year. SMM believes there is little room for China’s lead concentrate output to grow in March since prices of lead, gold and silver have been depressing this month. Supplies of lead concentrate were tight following the Chinese New Year as lead concentrate enjoyed no notable price advantage after LME lead prices rose. This has lent some support to future primary lead prices. Lead prices may stabilize after the Cyprus debt crisis is solved. Spot lead prices are expected to track LME lead up, with traded prices RMB 50/mt higher at RMB 14,450-14,550/mt.