SHANGHAI, Apr. 22 (SMM) –With the absence of guidance from LME lead prices, the most active SHFE 1405 lead contract price started last Friday’s night session at RMB 13,830/mt, and then dipped below the RMB 13,800/mt mark. The metal subsequently sank to a low of RMB 13,760/mt, and closed down RMB 25/mt, or 0.18%, at RMB 13,760/mt. Traded volumes were only 40 lots, while positions were off 12 lots to 5,898 lots.
SHFE lead prices rose Monday by RMB 170/mt back above RMB 13,800/mt, and later rose further to end at RMB 13,825/mt. Traded volumes gained 296 lots to 1,154 lots, and positions expanded 220 lots to 6,130 lots.
Lately SMM has conducted a survey of 30 market participants towards lead price movements for this week. 43% of the surveyed are bullish, expecting LME lead prices to reach USD 2,180/mt and physical lead prices to move between RMB 13,750-13,900/mt. A string of economic reports, including the Conference Board Leading Economic Index, US existing home sales, durable goods orders, Markit manufacturing PMI, as well as the University of Michigan’s consumer sentiment index, are all scheduled for release this week. Flash manufacturing PMIs from the euro zone and China will also be announced. Comparatively bullish projections for these economic reports will further reinforce market confidence towards the recovering European and US economies and improving China’s infrastructure construction during April. Meanwhile, the concentration of LME warehouse receipt supply, declining LME lead stocks, and narrowing physical discounts during March all will combine to push up lead prices. In China’s physical markets, TC for lead concentrate should fall against the backdrop of persistently tight supply, while lead smelters, particularly in Henan and Hunan provinces, will hold onto goods due to low lead and silver prices. These two factors should lend some support to physical lead prices. In addition, the current strength in copper and zinc prices will also boost lead prices this week.
40% of these market participants take the view that lead prices will hold flat this week, with LME lead prices unchanged at USD 2,150/mt and spot lead prices mostly in the RMB 13,750-13,850/mt trading band. They argue that base metals markets will still be confronted with three risk factors despite the relatively bullish sentiment. First, China’s property markets are possibly braced for a crash, while the restart of IPO (initial public offering) will also put a dent in investor confidence. Second, copper and zinc are experiencing significant speculation, with physical premiums for copper rising as high as RMB 900/mt over the nearby SHFE contract. Nevertheless, the rising SHFE/LME copper arbitrage ratio will allow increasing inflows of imported copper, which will drag down spot prices and in turn leave high premiums short-lived. A fall in copper prices is expected to hurt lead prices. Third, although lower silvers prices could turn some smelters disinclined to trade, growing liquidity pressure will inflate lead supply with more deliveries, a drag on lead prices.
The remaining 17% believe that LME lead prices will fall to the USD 2,100-2,120/mt range and spot lead prices will drop to the RMB 13,700-13,800/mt band this week. They hold that those three risk factors discussed above will dominate base metals markets. Moreover, these market participants believe that downstream motive power and engine start-up battery producers will be unable to maintain current operating rates due to the severer low consumption season this year. Production reductions at these battery makers will aggravate the overhang of lead ingot supply, presaging a fall in lead prices.