SHANGHAI, Jun. 25 (SMM) – SHFE 1309 lead contract price opened RMB 25/mt lower at RMB 13,935/mt on Monday. The A-shares fell below 2,000 with a decline of almost 5% due to reports about tightening liquidity, driving base metals to fall. However, as only a few investors entered the lead market, and SHFE lead prices were only RMB 20/mt higher than a yearly low, SHFE lead prices were relatively resilient than other metals, and moved at RMB 13,900-13,940/mt, to finally close at RMB 13,915/mt. Trading volumes increased 128 lots to 306 lots, and positions were up 124 lots to 1,784 lots. Shorts increased positions actively. Given the revival of European debt crisis, the strong US dollar and the tight liquidity in China, lead prices are expected to remain weak.
Spot lead prices fell RMB 50/mt along with futures prices on June 24. Prices for Chihong Zn & Ge were RMB 13,790-13,800/mt, with discounts of RMB 110/mt against the SHFE 1309 lead contract price. Prices for Nanfang were around RMB 13,750/mt, RMB 20/mt lower than SHFE 1307 lead contract price. Shuikoushan, Mengzi and Hanjiang were offered at RMB 13,760-13,780/mt. Downstream buyers purchased cautiously, while cargo holders were willing to sell goods due to tight cash flow. In the afternoon, consumption was further dampened as metals prices fell along with the slump in Shanghai Composite Index.
SMM conducted a survey of industry insiders’ attitude towards lead price trends this week after the Fed announced the result of its policy meeting.
According to SMM survey, 40% of industry insiders believe LME lead prices will fall below USD 2,000/mt to around USD 1,990/mt this week, while spot lead prices in China may drop RMB 50/mt to RMB 13,650-13,750/mt. With the Fed determining the schedule for scaling back the asset purchasing program, the US dollar rallied to 82.5, and major US equities fell back to the levels seen in early May. Greece’s Democratic Left Party pulled out of the ruling coalition government and the IMF threatened to stop offering rescue funds to Greek government before late July, hurting market confidence in European economy and rekindling concerns over the European debt crisis. HSBC China manufacturing PMI hit a 9-month low in June, while May’s CPI and PPI figures both dropped MoM. Tight liquidity caused the Shanghai Composite Index to fall below 2,000. These all indicated a weak Chinese economy, which will add to global economic recovery and drag down lead prices. In spot lead markets in China, bearishness strengthened in downstream market, preventing buyers from purchasing. That, combined with tight cash flow, consumption will remain unimproved this week. In addition, lead-acid battery producers still report poor orders and only purchase according to production needs. Cargo holders which also face financing pressure will be more willing to move goods, and lead prices will be negatively affected by oversupply.
The remaining 60% believes LME lead prices may start correction to move around USD 2,100/mt following the 5% decline last week, with resistance at USD 2,050/mt. Market players will be more rational following the strong response to a QE termination, and the Fed’s retreat from the QE actually reflects a turnaround in the US economy. This may in turn give a boost to China’s exports which is beneficial to recovery in both China and US. Meanwhile, the International Lead & Zinc Study Group revealed that global lead market was in surplus of 131,000 mt during the first four months, compared with the oversupply of 38,000 mt a year ago. LME lead inventories also continued falling to less than 200,000 mt from the 317,000 mt at the beginning of this year, which will help support lead prices. In China, Yuguang Gold & Lead suspended one production line for a 42-day maintenance, with the lead output expected to fall over 10,000 mt. Besides, lead concentrate supply was still in shortage which kept its prices high, forcing some medium and large smelters to cut production, and the curtailed lead output will help bolster lead prices. Furthermore, the China Association of Automobile Manufacturers reported that China’s automobile output and sales were 1.78 million and 1.76 million vehicles in May, both down from the previous month, but rising from last year’s levels. The stable development in automobile industry will benefit the recovery in ignition battery demand. In this context, many investors expect China’s spot lead prices to hold steady at RMB 13,700-13,800/mt with transactions modest this week.