SMM Lead Market Daily Review (2013-4-22)

SHANGHAI, Apr. 23 (SMM) – SHFE 1306 lead contract price was weighed on at the 5-day moving average after opening at RMB 13,830/mt on Monday. Prices held firm between RMB 13,780-13,800/mt in the morning trading session but fell to RMB 13,670/mt in the afternoon as spot lead demand remained weak and as SHFE copper fell below RMB 50,000/mt. The contract for June delivery finally closed at 13,700/mt, down RMB 165/mt or 1.19%. Traded volumes increased 214 lots to 426 lots, and positions dropped 86 lots to 2,036 lots.

SHFE lead prices followed a weak trend on Monday, and transactions in China’s spot lead markets were mainly for warehouse warrants. Chihong Zn & Ge was mainly quoted at RMB13,782/mt, while Nanfang was traded at RMB 13,730/mt. Warrants of Yubei and Shuangyan were quoted at RMB 13,730-13,740/mt, with premiums of RMB 10-20/mt against the SHFE 1305 lead contract price. As copper prices continued to fall, some market players believe SHFE lead may still fall. Downstream buyers were thus unwilling to purchase, and some smelters under financial pressures began selling goods. Trading remained light on the whole. Transactions were even quieter in the afternoon as SHFE lead fell further along with SHFE copper.

SHFE lead prices, unlikely copper prices, showed some resilient this Monday following the nearly 6% plunge last week. However, most investors were still not optimistic according to SMM’s latest survey.

47% of the surveyed market players believe SHFE lead may stabilize after hitting a record low last week as market confidence was restored with declines in precious metals arrested. Meanwhile, despite the twists and turns, Giorgio Napolitano was re-elected as Italian president, raising expectations for the country’s political stability. Zhou Xiaochuan, governor of the People's Bank of China, said at the IMF’s Spring Meeting that the 7.7% YoY growth for China’s 1Q economy is in a reasonable range, and China will continue its pro-growth policies. In addition, the US dollar index met strong resistance at 83. These may all offer certain support to base metals. Thus, LME lead prices are expected to test USD 2,000/mt. In China’s spot lead markets, lead-acid battery producers, though in low-demand season, may increase purchases slightly given the approaching May Day holiday, while SHFE lead inventories fell 2,323 mt last week, which is beneficial to lead market. Moreover, lead smelters will cut production or hold prices firm due to losses, leaving spot lead quoted at premiums against futures prices. However, the upward trend will be limited, with spot lead prices expected at RMB 13,650-13,800/mt.

53% of them are pessimistic given the weak global economy and numerous negative reports, including lowered global growth forecast announced by IMF, negative economic data in the US, lingering European debt crisis, the worse-than-expected China 1Q GDP growth, and the earthquake hitting Ya’an, Sichuan province, which may affect China’s GDP. Furthermore, copper prices, bellwether of base metals, fell by the daily limit last week influenced by the slumping precious metals, adding to bearishness. SHFE copper prices have fallen below RMB 50,000/mt, further dampening market sentiment. Thus, these investors expect LME lead prices to fall below USD 2,000/mt to touch USD 1,980/mt. In China, the long-term depression in spot lead markets caused a surge in smelter inventories, and tight financing may force smelters to cut prices. In this context, spot lead prices are expected at RMB 13,500/mt this week.