SMM Lead Market Daily Review (2014-4-8)

SHANGHAI, Apr. 9 (SMM) – The most active SHFE 1405 lead contract price started Tuesday a touch higher at RMB 13,735/mt, and trended up slightly with the help of a rally in the Shanghai Composite Index. The contract prices hovered most of the day between RMB 13,700-13,740/mt, and finished up RMB 30/mt at RMB 13,740/mt, finding support at the 20-day moving average. Traded volumes rose to 680 lots, while positions lost 200 lots to 6,436 lots.

Goods from Chihong Zn & Ge, Nanfang, Chengyuan, and Shuikoushan traded Tuesday mostly between RMB 13,680-13,700/mt, a discount of some RMB 10-30/mt over the most active SHFE 1405 lead contract price. Traded prices were RMB 13,680/mt for Shuangyan supply wrapped with plastic steel and Humon resources, and RMB 13,650/mt for Shuangyan supply wrapped with iron sheet. Lead smelters continued to hold back goods due to low lead prices. The latest SMM survey showed the average operating rate lead smelters in March was instead down from February’s level, and is expected to fall further in April. With tight physical supply from Nanfang and Chengyuan in the Shanghai market, traders became even more disinclined to move goods. Downstream producers, however, were more active restocking Tuesday following the Qingming holiday, with trading activity better than last Friday.

The latest SMM survey of 30 industrial participants shows that market sentiment has this week significantly improved from last week.

53% of the surveyed are bullish on lead prices this week, expecting LME lead prices to test resistance at the USD 2,100/mt mark and the most active SHFE 1405 lead contract price to rise as high as RMB 13,900/mt. In China’s physical lead markets, traded prices are expected to climb to the RMB 13,700-13,800/mt range. China’s CPI and PPI for March to be made public this week both are likely to improve, but will exert limited impact on base metals markets. It has become a consensus view that the Chinese government is about to unveil new stimulus measures to boost its economy. In addition, the number of domestic lead smelters conducting maintenance will only grow against the backdrop of low physical lead prices and lingering shortages of lead concentrates. A recent SMM survey reveals that the average operating rate at major Chinese lead smelters fell in March to 57.01%, down 1.55 percentage points from February’s average. The rate is highly likely to decline further in April based on smelters’ plans for maintenance during the month. Tight lead supply will push up physical lead premiums over SHFE current-month lead contract prices, allowing upside room for lead prices.

34% of these market players believe that lead prices will hold flat this week, with LME lead prices between USD 2,030-2,080/mt, SHFE 1405 lead contract prices between RMB 13,650-13,800/mt, and spot lead prices between RMB 13,600-13,750/mt. Although worse than expected, US nonfarm payroll figures for March should enhance expectations for the US Federal Reserve’s QE tapering with nearly 200,000 new jobs added. Therefore, the Fed’s minutes from the March 18-19 interest rate meeting will not release any new information on Wednesday. LME lead inventories basically remained steady, except for an increase of 1,325 mt April 1, with physical discounts at around USD 25/mt.

The remaining 13% are rather bearish, expecting that LME lead prices this week will test a low of USD 2,013.5/mt, SHFE 1405 lead contract prices will test support at RMB 13,550/mt, and spot lead prices will fall to the RMB 13,500-13,600/mt range. Risk aversion sentiment as a result of the escalating Ukraine crisis will weigh down lead prices this week. SMM learns that electric lead-acid battery producers and distributors have conducted sales promotions due to seasonally low consumption and mounting finished goods inventories. Although no intensive reductions in output are reported now, battery producers will inevitably cut back on production once their sales are hindered.