SMM Lead Market Morning Review (2014-3-28)

SHANGHAI, Mar. 28 (SMM) – LME lead prices overnight started at USD 2,065/mt, and then fell as low as USD 2,050/mt after hitting USD 2,070/mt in Asian and European trading hours. Despite mixed US economic data, LME lead prices followed LME copper prices up to close USD 9.75/mt higher at USD 2,072.25/mt, facing strong resistance at the USD 2,100/mt mark. Trading volumes shed 1,225 lots to 2,442 lots, positions contracted 914 lots to 136,509 lots, and LME lead inventories shrunk 225 mt to 200,400 mt.

US final GDP in the fourth quarter of 2013 grew at a 2.6% annual rate, below expectations but up from Q3’s level. Consumer spending, exports, and nonresidential fixed investment rose, but housing investment, government spending and imports contracted, dragging down the Q4 GDP growth. The number of Americans filing new claims for unemployment benefits fell last week to 311,000, the smallest since November 2013, a sign that the US labor market is gradually recovering. In addition, the Kansas City Fed's manufacturing composite index rebounded sharply to 10 in March. Nevertheless, US February pending home sales touched a new low in more than two years. These mixed economic data failed to provide clear guidance for markets. Although the US Federal Reserve has removed the 6.5% unemployment rate as threshold for an interest rate hike, US nonfarm payrolls report due for release next week is still worth noting for its role in gauging the country’s economic health.

In China, profits of large scale enterprises rose 9.4% YoY to RMB 779.31 billion in January and February, with the growth down 2.8 percentage points from a year ago. The People’s Bank of China (PBOC) conducted RMB 20 billion of 28-day repurchase agreements and RMB 32 billion of 14-day repurchase agreements. The PBOC has already drained a total of RMB 98 billion from open markets this week, more than doubling last week’s RMB 48 billion. The interbank interest rate is climbing, showing liquidity conditions in China are rather tight by the end of the first quarter. The tight cash flows are expected to be exacerbated by massive fiscal deposits taxation in April.

The US dollar index rose 0.13%. Asian and European stocks were mixed, while three major US stock indexes all closed lower. LME base metals prices, except LME tin and nickel prices, ended slightly up.

Despite the lack of major news expected in Asian trading hours on Friday, shortage of available spot copper and aluminum supply should boost speculation for base metals prices. LME lead prices are set to fluctuate between USD 2,060-2,080/mt, and the most active SHFE lead contract price is forecast to move between RMB 13,750-13,850/mt. Spot lead prices should hold flat on Friday between RMB 13,650-13,750/mt in China’s physical markets.