SHANGHAI, Jul. 9 (SMM) – The most active SHFE 1309 lead contract price opened RMB 40/mt lower at RMB 13,845/mt on Monday. Prices then moved narrowly between RMB 13,835-13,850/mt. In the afternoon, as LME lead rose USD 10/mt, the SHFE contract for September delivery increased to RMB 13,885/mt and finally closed at RMB 13,850/mt, down RMB 30/mt from the previous trading hours. Trading volumes for the most active contract increased 80 lots to 236 lots, and positions rose 202 lots to 2,324 lots. Market was pessimistic to June’s PPI and CPI data to be released on Tuesday, which may further weigh down lead prices.
SHFE lead prices sank again towards a yearly low on Monday and supplies in China’s spot lead markets grew sharply due to soaring US dollar and negative expectation for China PPI to be release Tuesday. Cargo holders increased supplies out of fears for lower prices, goods of Nanfang, Chengyuan, Hanjiang, and Mengzi were mainly offered at RMB 13,680-13,700/mt, with discounts of RMB 140/mt over the most active SHFE lead contract price. Warrants for Shuikoushan, Tongguan, and Yubei were offered at RMB 13,670/mt, with premiums of RMB 30/mt over the SHFE 1307 lead contract price, while warrants of Yuguang were quoted at RMB 13,690/mt, RMB 50/mt higher than the SHFE current month lead contract price. YT’s warrants were still quoted at RMB 13,710/mt. Downstream buyers were mainly on the sidelines, and trading remained weak.
SMM survey of 30 industry insiders reveals that 60% of them expect LME lead to remain below the 10-day moving average this week. LME lead prices fell soon after opening on July 8 and moved around the previous supporting level of USD 2,040/mt. The US dollar has risen over 5% since June 18 and is heading toward 84.6 to hit a new high of the year. The dollar is expected to hover at the current level but stay above 84 this week given fewer risky events. As a result, these industry insiders believe LME lead prices will move between USD 2,030-2,055/mt this week. In China’s spot markets, traders will mostly stay out of the market. Although some smelters cut output due to maintenance, poor orders and inventory pressure will keep downstream buyer from purchasing. Thus, spot lead prices will unlikely show significant change and should remain at RMB 13,650-13,750/mt.
27% of the surveyed market players are more pessimistic. The recovering employment is a strong indication that Fed will start tapering asset purchasing program in September, which is bound to drive up the US dollar, so LME lead will be weighed down. On the European side, S&P cut the rating outlook for Portugal from “Stable” to “Negative”, adding to political uncertainty in Europe. Besides, opinions on the bailout funds for Greece remained divided among euro zone members. In this context, the euro may possibly fall to the lower Bollinger band of 1.275. In China, CPI and PPI figures for June will be released this week, and market predictions are that PPI will fall 2.6%, reflecting unpromising prospect for China’s economy. These factors have led some industry insiders to believe LME lead prices may test USD 2,000/mt this week, and SHFE lead prices will move down to RMB 13,800/mt to touch a new low influenced by decline in LME lead and weak domestic stocks. Buying willingness for spot lead will remain low, and both sellers and buyers are bearish, with spot lead prices expected at RMB 13,600-13,700/mt.
Only 13% of industry insiders are relatively optimistic, noting that the falls in base metals last week were due mainly to speculation and LME lead may still rebound this week given the buying support and with influence of nonfarm payrolls dissipating. The rallies in US equities will also benefit LME lead. In Europe, the European Central Bank and Bank of England both announced to maintain the current easing policies, helping with the restoration of the euro and European equities. In addition, LME lead inventories are still below 200,000 with canceled warrant ratio still high at 58%. Thus, some market players believe LME lead prices will regain last Friday’s losses to hover around USD 2,060/mt this week. Spot lead prices will also edge up along with higher LME lead prices to RMB 13,700-13,800/mt, injecting confidence into spot markets and helping ameliorate transactions. The increase in spot prices is limited due to low-demand season.