SMM Lead Market Daily Review (2014-3-3)

SHANGHAI, Mar. 4 (SMM) – The most active SHFE 1404 lead contract hovered between RMB 13,880-13,920/mt after starting last Friday’s night session at RMB 13,935/mt, and finally closed down RMB 10/mt or 0.07% at RMB 13,880/mt. During the night session, trading volumes shrank to 200 lots, positions gained 246 lots to 8,770 lots, and SHFE lead inventories contracted 200 mt to 202,225 mt. Soft Chinese official PMI released overnight and political crisis in Ukraine put a dent in market sentiment. In response, SHFE lead prices followed LME lead prices down to fluctuate narrowly between RMB 13,810-13,830/mt, and tested support at RMB 13,800/mt. The metal later sank to an intraday low of RMB 13,795/mt, and at last finished down RMB 80/mt or 0.58% at RMB 13,810/mt. Trading volumes surged to 2,580 lots, and positions expanded 268 lots to 9,074 lots on Monday. Facing bearish technical indicators, SHFE lead prices should continue to test support at the RMB 13,800/mt mark.

Goods from Chihong Zn & Ge were offered on Monday between RMB 13,770-13,780/mt with discounts of around RMB 50/mt over the most active SHFE lead contract price, and traded between RMB 13,750-13,800/mt. Yuguang supply was quoted at discounts of RMB 30/mt over SHFE 1404 lead contract prices, and Chengyuan supply was offered at premiums of RMB 30/mt over SHFE 1403 lead contract prices. Humon resources were sold at RMB 13,750/mt. No other smelters moved goods on Monday, except for Chihong Zn & Ge and Humon. Market sentiment was hurt by political crisis in Europe and soft Chinese economic data, and downstream producers were concerned about a further fall in lead prices, leaving transactions light on Monday.

SMM has conducted a survey of 30 market players on lead price movements during this week. 53.3% of the surveyed are bearish, expecting LME lead prices to fall to USD 2,080/mt and spot lead prices to trade between RMB 13,650-13,750/mt. Chinese government is expected to set lower growth targets for 2014 at the ongoing National People’s Conference (NPC) and Chinese People’s Political Consultative Conference (CPPCC) to carry out economic restructuring. This, combined with China’s official manufacturing PMI for February released last Saturday which hit the lowest level since June 2013, will weigh down metals demand. In the US, disappointing housing data, local manufacturing PMIs, and Q4 GDP released last Friday, casted doubt on the nation’s economic recovery. In addition, the political turbulence in Ukraine will also hurt investors confidence, putting downward pressure on high risk assets. Since there are no other positive news except for harsh weather conditions, spot lead discounts show limited changes. SHFE copper prices, however, have fallen below the USD 7,000/mt mark since rapid depreciation of the yuan restrained the metal’s financing demand, and any further declines will drag down lead prices.

In addition, LME lead prices have broken below all moving averages, with a slew of downbeat technical indicators. In China’s physical lead markets, lead smelters are expected to step up moving goods due to growing finished goods inventories and tighter liquidity during March, the last month of Q1, inflating lead ingot supply in the market. An increasing number of small smelters which have restarted production will also add to lead supply. With regard to lead demand conditions, lead-acid battery producers are launching price wars with mounting finished goods inventories against the backdrop of sales difficulties in electric bike markets. Meanwhile, production at engine start-up battery producers will be affected by the fact the replacement battery markets have entered low demand season. Slower lead demand and building supply are expected to put a dent in spot lead prices.

The remaining 46.7% believe that LME lead prices will move around USD 2,100/mt, and spot lead prices will fluctuate between RMB 13,700-13,850/mt this week. Although soft Chinese and US economic reports are detrimental to base metals prices, a steep fall in the US dollar index will support LME lead prices. In addition, strategic resource lead is likely to be speculated since political crisis in Ukraine presages impending wars. Spot lead prices have dipped to the range of RMB 13,700-13,800/mt, and are unlikely to fall further due to cost factor. Parts of primary lead smelters will gradually curtail or suspend production with expanding loss from lower TC for raw material lead concentrate, lending support to spot lead prices. Large-scale enterprises this week will have higher buying interest due to falling lead prices and low raw material inventories.