SHANGHAI, Mar. 18 (SMM) – The most active SHFE 1404 lead contract price essentially hovered between RMB 13,610-13,620/mt after starting higher at RMB 13,615/mt, and closed up RMB 55/mt or 0.41% at RMB 13,615/mt in last Friday’s night session. During the trading hours, trading volumes were only 26 lots, while positions were off 16 lots to 7,880 lots. European and US stocks fell across the board after the geopolitical crisis in Ukraine was aggravated by last Sunday’s referendum in the Crimea region. Pressured by overwhelming bearish sentiment, SHFE 1404 lead contract prices fluctuated most of the time around RMB 13,560/mt, and then touched a high of RMB 13,610/mt, boosted by positive news from China’s urbanization plans. The metal dipped to RMB 13,540/mt at the tail of the trading, and finished up RMB 5/mt or 0.04% at RMB 13,565/mt on Monday. Trading volumes shrunk 270 lots to 830 lots, and positions contracted 160 lots to 7,736 lots. Positions for SHFE 1405 lead contract stood at 7,126 lots. SHFE lead prices still face massive downward pressures given bearish technical indicators.
Goods from Chihong Zn & Ge initially traded on Monday at RMB 13,620/mt in Shanghai, a premium of RMB 50/mt over the most active SHFE lead contract price, and then were sold higher at RMB 13,650/mt, boosted by rising SHFE lead prices. Yubei and Shuangyan resources traded at RMB 13,620/mt and RMB 13,570/m, respectively. Spot quotations were rare in the market since lead smelters traded in light volumes. Lead prices hit the lowest level last seen in August 2009. Despite limited downside room in the near term, lead prices were not expected to trend higher. In this context, downstream producers largely conducted purchases only on an as-needed basis, with trading activity fairly quite on Monday.
China’s spot lead prices have fallen to a fresh low last seen in August 2009. SMM has conducted a survey of 30 industrial participants over lead price movements this week. The survey shows 74% expect LME lead prices to move between USD 2,000-2,070/mt and spot lead prices to fluctuate between RMB 13,500-13,700/mt this week. At present, markets are mostly impacted by the geopolitical crisis in Ukraine and concerns over China’s increasing credit risks and long-term demand for base metals. More than 90% of Crimean residents voted in last Sunday’s referendum to join the Russian Federation. Although the European Union and the US threatened Russia with economic sanctions, Russia still had taken military actions in eastern Ukraine outside of the Crimea region. The uncertainties over conditions in Crimea will leave markets on guard in the near term, indicating there is unlikely to be significant fluctuations in base metals markets. Financial markets took the brunt of China’s credit worries caused by first domestic bond default and weak economic data. A majority of base metals prices, however, snapped their losses last Friday, an indication that markets have already digested bearish news out of China. From the fundamental point of view, these industrial participants hold SMM #1 lead prices have broken below costs of lead smelters. Lead smelters are disinclined to sell to hold prices firm since they have few liquidity pressures with long-term orders, which will cut supply in the market. Downstream producers have modest buying interest when lead prices are low, and spot lead prices will also be supported by the lack of supply, so any declines will be limited.
13% of the surveyed believe LME lead prices will test previous support at USD 1,980/mt, and spot lead prices will drop to the range of RMB 13,500-13,600/mt this week. They argue that escalating tensions between Russia and the West over the status of Crimea will shy investors away from risk assets to safe-haven precious metals, which is bearish for base metals prices. The People’s Bank of China (PBOC) announced last week to double the yuan’s daily trading limits. Markets forecast the yuan to depreciate further in the near term given recent loss in the Chinese currency, which will trigger increasing sell-offs of copper financing deals and exert downward pressure on other base metals prices. In addition, announcements by 6 Chinese copper smelters including Jiangxi Copper to step up copper exports will also put a dent in copper prices in global markets. In China, lead smelters will be forced to move goods due to liquidity pressures caused by building lead ingot inventories although lead prices have dipped below their cost. Meanwhile, engine start-up and motive power lead-acid battery producers have entered low demand season, signaling that lead oversupply still exists given sluggish consumption. In this context, lead prices are expected to fall further this week.
The remaining 13% predict lead prices to trend a tad higher this week, with LME lead prices between USD 2,030-2,080/mt and spot lead prices between RMB 13,600-13,700/mt. They claim the newly released urbanization high speed rail construction plans by the Chinese authorities will effectively push demand the nation’s demand for base metals. Lead prices look set to stage a technical rebound this week as lead smelters are reluctant to trade to keep prices firm.