SMM Lead Market Morning Review (2014-6-24)

SHANGHAI, Jun. 24 (SMM) – LME started overnight at USD 2,130.8/mt, and then trended higher to close up USD 42/mt, or 1.97%, at USD 2,176/mt, aided by a series of positive economic reports. Trading volumes gained 2,289 lots to 7,282 lots, and positions lost 569 lots to 122,791 lots. Meanwhile, the latest LME lead stocks held flat at 192,575 mt.

Prices for the most active SHFE 1408 lead contract opened Monday’s night session at RMB 14,205/mt, and tracked LME lead prices up to a high of RMB 14,275/mt afterwards. SHFE lead prices fell back subsequently to end up RMB 50/mt at RMB 14,170/mt after short investors flocked in the market. Despite decreasing refined lead supply, lead prices could be dragged down by lackluster consumption at lead-acid battery producers.

HSBC Flash China Manufacturing PMI released early on Monday rose to a 7-month high of 50.8 in June, beating the expected 49.7 and up for the first time after hovering below the 50 mark in 5 consecutive months. The upturn in the index is attributable to a series of pro-growth policies and targeted reserve requirement ratio (RRR) cuts unveiled by the Chinese government over the past months. In response, most LME base metals prices went up since market participants turned more confident in China’s demand for base metals.

Meanwhile, the preliminary US Markit Manufacturing PMI jumped to 57.5 in June, its highest in more than four years, indicating the country’s economy is on a sturdy track, emerging from the severe winter weather. In addition, US existing home sales crept up to 4.89 million units in May on an annually adjusted basis, far exceeding the estimated 4.73 million. Despite the encouraging economic releases, US stock indices failed to extended gains on Monday.

The euro zone’s flash Composite PMI for June was reported at 52.8, below the expected 53.5. PMIs in the manufacturing and service sectors fell to 7-month and 3-month lows, respectively, in a sign that the economic recovery in the single currency bloc lost some steam. Separately, France’s Manufacturing PMI dropped by 1.8 to 47.6, which is well below the 50 mark that divides growth from contraction. Germany’s Manufacturing PMI, however, ticked up to 52.4 in June, up for a 14th month in a row.

The euro edged up 0.03% against the US dollar. The US dollar index eased 0.08%. Most European stock indices fell. LME copper, lead and zinc prices closed higher, but LME aluminum, tin and nickel prices dropped slightly.

At present, base metals markets are dominated by bullish sentiment. Moreover, the latest data from the China Nonferrous Metals Industry Association (CNIA) show that China’s refined lead output decreased by 6.26% YoY in the first five months. Refined lead consumption, however, is growing, boding well for lead prices.

In this context, LME lead prices are expected to move between USD 2,170-2,190/mt on Tuesday, and prices for the most active SHFE 1408 lead contract are set to hover at RMB 14,120-14,220/mt. In China’s physical lead markets, traded prices should be largely in a RMB 13,900-14,000/mt band on Tuesday.