SMM Lead Market Daily Review (2014-3-24)

SHANGHAI, Mar. 25 (SMM) –The most active SHFE 1405 lead contract price hovered essentially around RMB 13,765/mt after starting at RMB 13,785/mt, and ended down RMB 15/mt, or 0.11%, at RMB 13,760/mt during last Friday’s night session. During the trading hours, trading volumes totaled only 74 lots, while positions gained merely 6 lots to 7,356 lots. Dampened by falling LME lead prices and prevailing bearish sentiment, SHFE 1405 lead contract prices moved most of Monday between RMB 13,720-13,750/mt, and closed down RMB 20/mt, or 0.15% at RMB 13,740/mt. Trading volumes rose 82 lots to 450 lots, and positions shed 66 lots to 7,284 lots. SHFE lead prices have found support at the 5-day moving average, but face resistance at the 20-day moving average.

In the Shanghai physical lead market, goods from Chihong Zn & Ge and Chengyuan traded on Monday between RMB 13,700-13,710/mt, a discount of around RMB 20-40/mt over the most active SHFE 1405 lead contract. Shuangyan resources were sold at RMB 13,680/mt. No Humon supply was found in the market, with a majority of transactions for Chihong Zn & Ge and Chengyuan goods. Downbeat China’s manufacturing PMI depressed the market, and trading activity was modest on Monday since downstream producers had low buying interest.

SMM surveyed 30 industrial participants on lead price movements for this week. 60% of the surveyed believe lead prices will remain volatile, with LME lead prices moving between USD 2,050-2,090/mt and spot lead prices fluctuating between RMB 13,600-13,800/mt. The US Federal Reserve has announced planned moves on its monetary policies and is expected to raise interest rates in 2015 despite the lack of significant improvement in economic data. The US dollar index is highly likely to trend higher and exerts downward pressure on base metals prices. In addition, the flash HSBC’s China manufacturing PMI for March surprised markets by falling to a 8-month low and missing February’s level, in a sign that orders at small and medium-size enterprises were disappointing following the Chinese New Year holiday. Market concerns about China’s long-term demand for base metals thus will be unlikely to ease in the near term. The crisis on the Crimean peninsula remains unresolved, and when combined with Russia’s strong posture on European and US economic sanctions will fuel risks in markets. As the yuan depreciation is accelerating, the forex receipt has contracted during February to USD 128.6 billion, down from January’s USD 309.1 billion, while the Shibor is also going up. Tight cash flows will be bearish for lead prices. Nevertheless, spot lead prices in China have fallen to a low last seen in August 2009, providing solid base support, so any further price declines will be limited.

The rest 40% are bearish, expecting LME lead prices to fall to USD 2,050/mt and spot lead prices to trade between RMB 13,600-13,700/mt this week. LME zinc has shifted to cash-to-three month contango of USD 8/mt from a backwardation of USD 45/mt due to soft demand, presaging lower prices for lead, extracted from lead-zinc ores. In addition, copper prices will fall on copper concentrate oversupply, weaker copper financing trade restrained by the yuan depreciation, and soft consumption in China, depressing base metals market. Lead smelters will be forced to increase sales, pressured by banking loan repayment at the end of the first quarter. Meanwhile, lead-acid battery producers will have low buying interest for raw material lead since their cash flows are squeezed by growing finished goods inventories. In this context, spot lead prices will fall further this week.