SHANGHAI, Oct. 21 (SMM) – Lead for December delivery on the Shanghai Futures Exchange, the most active contract, opened last Friday’s night session at RMB 13,655/mt, and then fluctuated at RMB 13,600-13,650/mt before ending up RMB 125/mt at RMB 13,650/mt.
SHFE lead advanced to RMB 13,735/mt early on Monday, but then retreated to RMB 13,630/mt. The price of the soft metal rebounded slightly to RMB 13,650-13,700/mt during the afternoon trading session, and closed up RMB 145/mt at RMB 13,670/mt.
Chihong Zn & Ge and Tongguan brands on the Shanghai physical lead market traded Monday at RMB 13,680/mt, a RMB 40/mt premium to the most active SHFE 1412 lead contract. Yuguang brand was quoted at a RMB 120/mt premium to the contract. Traded prices were RMB 13,670/mt for Nanfang brand and RMB 13,650/mt for Shuangyan brand. Although lead smelters continued to refrain from selling, deliverable goods flocked to the market, leaving physical supply abundant. Trading activity was quiet on Monday since most downstream producers stayed on the sidelines.
A recent SMM survey of 30 industry insiders shows that only 30% of the surveyed expect lead prices to extend gains this week, with LME lead rising to USD 2,030-2,060/mt and spot lead nudging up to RMB 13,650-13,750/mt.
This bullish stance is largely based on three reasons. First of all, the 4th plenary session of the CPC 18th Central Committee is believed to give a boost to market sentiment. At the same time, lead prices will take heart from easy liquidity conditions following a series of money injection by the People’s Bank of China (PBOC). In addition, prices should bottom out this week after slipping to the lowest since the start of this year. Finally, large Chinese primary and secondary lead smelters are suffering losses, meaning that costs will support prices.
53% of respondents expect LME lead to hold flat between USD 2,000-2,050/mt and spot lead between RMB 13,600-13,750/mt this week.
Base metals markets are now concerned over a slowdown in the global economy. China’s GDP growth is set to slow in 2014 and 2015 as the Chinese government is determined to implement economic reforms outlined last year. Despite this, the government is unlikely to introduce massive stimulus measures rolled out in the wake of the 2008 economic downturn to prop up the economy.
Meanwhile, European leaders remain split on whether they should adopt pro-growth measures, while intensifying conflicts between European countries and Russia will further depress Europe’s economy as a whole. The slowdown in these economies will potentially have a contagion effect on the US economic recovery.
Encouraging US GDP growth and expectations for an interest rate increase by the US Federal Reserve should combine to push up the US dollar index, boding ill for base metals markets.
On the other hand, most market participants polled by SMM project that lead prices will gain solid support from costs.
Therefore, negative macroeconomic conditions and relatively upbeat lead fundamentals are slated to trap prices in current ranges.
The remaining 17%, however, hold that LME lead will test support at USD 1,980/mt and spot lead will retreat to some RMB 13,600/mt this week, citing overwhelming downward pressure from a slowdown in the global economy.