SHANGHAI, Oct. 15 (SMM) – The most active SHFE lead contract prices opened flat at RMB 14,145/mt on Monday. China’s CPI released in morning trading session rose 3.1% from a year ago, higher than a forecast of 2.8% and August’ s 2.6%, aggravating worries over tighter monetary policy in the future. However, the September PPI fell 1.3%, a smaller fall than the 1.4% expected by the market and the 1.6% drop in August, which pointed to a manufacturing recovery. In this context, the 1312 SHFE lead contract prices consolidated between RMB 14,100-14,130/mt on Monday, underperforming the other base metals prices in morning trading hours. The prices, boosted by the rally of LME lead prices in afternoon trading session, surged above RMB 14,200/mt with the last deal done at RMB 14,420/mt, leaving SHFE lead prices up RMB 275/mt from the previous trading day. However, the extraordinary high traded price was considered caused by a mistake.
In Shanghai spot lead market, prices for Chihong Zn & Ge were between RMB 14,050-14,060/mt on Monday, with contango of RMB 50-60/mt against the most active SHFE lead contract price. Shuikoushan was quoted at a backwardation of RMB 20/mt over the SHFE 1311 lead contract price. Chengyuan and Nanfang were traded at RMB 14,040/mt, while Hanjiang and Shenqian were sold at RMB 14,020/mt. Humon’s resources were traded at RMB 14,000/mt. Cargo holders moved goods aggressively, but buying interest downstream weak, leaving transactions limited.
According to the most recent SMM survey, 40% of participants in lead markets are optimistic to lead price trends this week, believing that LME lead will touch a high of USD 2,130/mt and continue to trend up, and spot lead prices may register a gain a RMB 100-200/mt. Although the proposals of the House and Senate about debt ceiling increase have been rejected, a US default has never occurred in the history as a default may result in surging Treasury rates which will severely hurt the US and global economy. Besides, many Americans hold that Republicans are primarily responsible for the partial government shutdown, and the Republicans will unlikely carry on in regardless of public views. As such, market expects the debt ceiling crisis will finally be resolved, lending support to LME lead prices. In addition, market focus will shift from the US to China, with the country’s economic figures, including CPI, PPI, 3Q GDP, and retail sales, expected to be announced this week, and expectations for these data are positive. On the other hand, the International Lead & Zinc Study Group (ILZSG) predicted recently that global lead market, for the first time in five years, will see a shortage of 23,000 mt in 2014. The continuous rises in positions for LME lead mirrored the improvements in fundamentals. In this context, some market players project that LME lead prices will move up after hitting USD 2,130/mt this week. In China’s spot lead markets, downstream demand has been weak after the Chinese National Day holiday. However, since most lead consumers held raw materials stocks at around 10 days, many are expected to increase purchases once lead prices increase, which will in turn send lead prices higher.
However, 60% of industry insiders are conservative, expecting LME lead prices to remain at USD 2,100/mt and SHFE lead prices to hold steady at RMB 14,100-14,200/mt, with spot lead prices staying around RMB 14,000/mt. Although most investors believe the US will not touch debt ceiling, market is not likely to be largely shored up even if the issue is resolved smoothly as the result is in line with forecast. Resultantly, base metals prices may not rise significantly. In China, downstream buyers will feel the need to replenish stocks, while lead smelters will also increase supplies. Plus the approach of delivery date, goods availability in spot markets will be escalated, leaving spot lead prices consolidating.