SHANGHAI, Jun. 18 (SMM) – As LME lead prices closed higher last Friday, SHFE 1306 lead contract price gapped nearly RMB 80/mt higher at RMB 13,880/mt on Monday, breaking above the 20 and 30-day moving averages. Later, demand for spot lead in China remained stable and the Shanghai Composite Index hovered narrowly, combined with LME lead moving around USD 2,120/mt, SHFE lead moved between RMB 13,890-13,900/mt and finally closed at RMB 13,895/mt, up RMB 75/mt. Trading volumes for the most active SHFE lead contract fell 10 lots to 36 lots, and positions remained unchanged at 1,782 lots. Total trading volumes for SHFE lead contracts were down 468 lots to 208 lots and positions increased 20 lots to 6,112 lots. SHFE lead prices are expected to fall back down.
Spot lead prices increased RMB 30-50/mt compared with last Friday as SHFE lead prices gapped higher. Chihong Zn & Ge was quoted at RMB 13,950/mt, RMB 50/mt higher than the most active SHFE 1306 lead contract price. Hanjiang and Mengzi were offered at RMB 13,900-13,910/mt. With the year moving ahead halfway, most lead-related enterprises reflected tight finance. Selling interest among lead smelters became higher, but downstream buyers were not willing to purchase at prevailing highs and most were awaiting Fed’s interest rate decision to be released this week. Thus, trading in China’s spot lead market was light in the morning.
With respect to lead price trends this week, 20% industry insiders surveyed by SMM are optimistic, believing LME lead price will continue to rise and move around USD 2,150/mt and spot lead prices in China may remain below RMB 14,000/mt despite a slight increase late last week. The continued US recovery offset the negative influence of China’s slowdown, and LME lead inventories fell further to 197,000 mt, a new low since November 2010, with canceled warrant ratio hitting 70%, which indicated improvement in overseas demand. In China, lead smelters are deprived of incentive to maintain production due to low prices and raw material shortage, easing tight supply. Meanwhile, SHFE lead inventories also slipped, combined with sellers holding prices firm, some investors believe lead prices will edge higher this week.
Pessimistic investors also account for 20% of those surveyed by SMM. These investors note that China will unlikely continue the high speed growth during the structure transformation, which may curtail base metals demand. Lead-acid battery producers kept cutting prices or raising rebates for distributors due to inventory pressure since early May, and some even cut production to ease the financial strains. These all reflected weak lead demand. Besides, lead market will not enter the traditional high-demand season in the short term, while traders and downstream buyers are reporting tight finance with the year approaching midway. As such, selling interest will be undermined with most buyers purchasing as needed. In addition, the continual recovery in US economy fueled expectation for Fed’s retreat from the QE3, adding to fears in the market and driving down stocks in Asia-Pacific market. Shanghai Composite Index fell 8.6% in June, and Nikki Index crashed 22%, eroding investors’ appetite. In this context, some investors expect LME lead prices to move below USD 2,100/mt this week. In China’s spot lead market, cargo holders may be willing to sell goods to generate cash, with spot lead prices expected at RMB 13,750-13,850/mt.
A majority, or 60%, of industry insiders are cautious, saying that market is waiting for the policy decision of the US Fed. Although the US economy is showing improvement, May’s strong nonfarm payrolls will not likely offset negative influence from other fields, in particular potential risk of deflation. Thus, the Fed may not terminate the QE in the short term, and market expects Bernanke remain ambiguous on the issue, leaving the US dollar index vacillating. As a result, most market players believe LME lead prices will hover around USD 2,100/mt. In spot lead market, both suppliers and buyers are staying out of the market, awaiting Fed’s policy decision, with spot lead prices expected at RMB 13,800-13,900/mt.