SMM Lead Market Daily Review (2013-7-22)

 

On July 22, spot lead prices in China remained firm, and ex-works prices offered by lead smelters were relatively high. Tongguan was quoted at RMB 13,750/mt in Shanghai, with spot discounts of RMB 110/mt against the most active SHFE lead contract price. Quotes of Mengzi were between RMB 13,720-13,730/mt, while those for Hanjiang were around RMB 13,720/mt. Nanfang and Chihong Zn & Ge limited supplies, leaving no quotes reported in the market. Humon’s goods were offered at RMB 13,660/mt. Despite the onset of traditional high demand season, most downstream buyers reported little improvement in consumption, and mainly purchased as needed.  

 

According to the latest SMM survey, a majority, or 73% of market players believe lead prices will keep consolidating this week. Ben Bernanke’s ambiguous comments last week left the timing for scaling back the asset purchases uncertain, while no more important stories are expected in Europe this week. In China, lead-acid battery producers and lead smelters are mired in a deadlock. The continuous increases in electric vehicle battery and declining finished goods inventories at battery producers are due mainly to traders replenishing stocks for the upcoming high demand season, meaning actual consumption by end consumers have not improved as significantly as expected. Under such conditions, most investors expect LME lead prices to hover around USD 2,050/mt without given direction. Spot lead markets will remain weak, as downstream buyers will still purchase as needed and smelters limit supplies, with spot lead prices expected at RMB 13,650-13,750/mt.

 

The remaining 27% market players are relatively optimistic. The People’s Bank of China announced last Friday to scrap the floor limit for banks’ lending interest rates. Market players believe the move will benefit SME financing and real economy, and will help boost Chinese stock markets. In China’s spot markets, smelters opt to conduct maintenance or cut production and focus on fulfilling long-term contracts as raw material supply remains tight and falling prices for silver are only exacerbating smelters’ losses. Therefore, supplies for branded lead have been limited. On the demand front, electric vehicle battery producers raised prices twice this month, expecting battery consumption to pick up with the arrival of peak demand season. These events may drive lead prices up slightly, with spot lead prices expected to be RMB 13,700-13,850/mt this week. LME lead prices may rise to USD 2,070/mt influenced by the rebounding euro and a pullback in the US dollar.