SHANGHAI, Jul. 2 (SMM) – The most active SHFE 1309 lead contract price started higher July 1 at RMB 13,920/mt. China’s official manufacturing PMI was reported lower and the HSCB manufacturing PMI hit a 9-month low, but the figures were in line with expectation and exerted limited influence on base metals and stock markets. As such, SHFE lead prices hovered around RMB 13,900/mt in the morning. In the afternoon, the Shanghai Composite Index rallied, driving SHFE copper to rise RMB 1,000/mt, but SHFE lead prices were little affected and only edged up RMB 20/mt to finally close at RMB 13,940/mt, up RMB 40/mt. Trading volumes fell 116 lots to 66 lots, and positions increased 20 lots to 1,956 lots. Lead prices are expected to stabilize with the onset of high demand season for lead-acid battery in summer months and lead supply shortage in overseas markets.
Both official and HSBC manufacturing PMI for China remained low in June, with lead prices still weak on the first trading day in July. In China’s spot lead markets, warrants for Tongguan, Yubei, Wanyang and Nanfang were offered at RMB 13,740-13,750/mt, with premiums of RMB 10-20/mt over the SHFE 1307 lead contract price but with discount of RMB 150/mt against the SHFE 1309 lead contract price. Mengzi was quoted at RMB 13,730-13,740/mt. The increased warrants helped ease tight supply in the market, while downstream buying interest remained unimproved. Cargo holders moved goods normally, believing lead prices to remain stable.
According to SMM survey, 60% market players surveyed by SMM believe lead prices will unlikely post any significant change this week, with LME lead prices expected to hover around USD 2,050/mt and SHFE 1309 lead contract price to test the 5-day moving average. Spot lead prices may stay between RMB 13,700-13,800/mt. Although China’s official manufacturing PMI for June was only slightly above 50 while HSBC manufacturing PMI hit a 9-month low, the figures are within market expectation with the influence on stocks and base metals markets limited. China’s liquidity crunch should gradually ease early in the new month, but the credit squeeze mirrored slides in profit margins and weakness in physical economy. Meanwhile, the high finished goods inventories and unimproved demand despite price cuts in lead-acid battery markets will continue to limit demand for lead ingot. In addition, CPI, PMI and interest rate policies of major economies, as well as the US nonfarm payrolls are due for release this week, which will leave investors cautious. As such, many market players believe lead prices will hover in narrow ranges.
40% of industry insiders expect lead prices to edge up this week. The Fitch Ratings reaffirmed the AAA sovereign credit rating for the US, noting that the rating is based on an accelerated US recovery, rapid growth in housing markets and improving employment. Besides, the euro zone maintained easing policies and China’s stock market stabilized with liquidity squeeze easing, alleviating investors’ fears. Canceled warrant ratio for LME lead remained high at 56-58%, albeit a slight decline. These will all help boost lead prices, but a strong US dollar may put LME lead under resistance at USD 2,100/mt. In China’s spot lead markets, as the high temperature may shorten service life of lead-acid batteries, lead demand will be pushed higher, while supplies in the market are not ample as smelters mainly fulfill long-term contracts after maintenances. Moreover, cargo holders with muted financial pressure at the beginning of the month will hold prices firm. However, as SHFE lead prices are often slow to respond to changes in market fundamentals, any increase in domestic spot lead prices will be restricted, and these investors expect spot prices to be RMB 13,750-13,850/mt this week.