SHANGHAI, Nov. 12 (SMM) – The most active SHFE lead prices started higher at RMB 14,290/mt on Monday, but later edged lower to close at an intraday low of RMB 14,210/mt, falling below all moving averages. Trading volumes expanded 124 lots to 436 lots, while open interest fell 158 lots to 9,128 lots. Currently SHFE lead and zinc performed worse than other base metals.
In China’s spot lead market, goods of Chihong Zn & Ge were traded at RMB 14,170/mt, a discount of RMB 60/mt over the most active SHFE lead contract prices. Nanfang resources were initially offered at RMB 14,160/mt, but traded mostly at RMB 14,140/mt due to ample supplies in the market. Branded lead warrants were quoted at a discount of RMB 80/mt over the SHFE 1312 lead contract prices, while Humon was sold at RMB 14,110/mt. The market turned cautious towards spot lead prices. As a result, lead smelters maintained normal supplies, but downstream producers had lackluster buying interest on Monday.
SMM conducted a survey of 30 participants in lead industry, finding that 40% of them believed lead prices will bounce back this week, saying that LME lead prices will return to USD 2,180/mt and spot lead prices in China will be RMB 14,200-14,300/mt. Although the US 3Q GDP and non-farm payroll data beat forecasts, the rising jobless rate and falling labor force participation rate left growing complexity of the US economic data. Thus, some investors believed the Fed still needs to see more positive data before it begins slowing its asset purchasing program. Elsewhere in the euro zone, as the European Central Bank continued monetary easing, the increasing liquidity will help support risky assets. In China, the industrial output, fixed asset investment, and consumption figures were all upbeat, reaffirming the country’s mild recovery. Meanwhile, expectations for reform proposals following the Third Plenary Session will also benefit markets. Technically, LME lead prices may present a technical correction after the sharp declines earlier. In addition, lead concentrate output is falling due to colder weather in north China, tightening raw material supply at smelters, which will also bolster spot lead prices.
27% of industry insiders were bearish, noting that the current US economic signposts fanned speculation over the Fed’s QE taper, which will weigh on base metals markets in the short-to-medium term. At the mean time, there is a mad dash into the US stocks, with the nation’s IPO offerings amounting to USD 51 billion this year, the highest level since 2000, and secondary offerings also at a high last seen in 1995. Funds are shifting from metals markets to securities for higher yields, leaving metals prices in a lack of impetus to rise. In China, the 10-year bond yield hit 4.30% last week, close to 2008’s high of 4.60%, while the China Development Bank also reported an all-time high cost for bond issuance. The resulting tight liquidity may negatively affect financial markets. On the technical side, LME lead prices are currently USD 50/mt above support at the 120-day moving average, leaving room for price declines.
The remaining 33% of market players expected lead prices to hold steady this week. Now that major economic data from China and the US have been released and further policy tendency remained uncertain, base metals may be directionless. In spot markets, raw material shortage at lead smelters will lend some support to lead prices, but demand downstream remained anemic, leaving suppliers and buyers in a gridlock.