SMM Lead Market Daily Review (2014-10-27)

SHANGHAI, Oct. 28 (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 retreated to finish down RMB 35/mt, or 0.26% at RMB 13,620/mt.

On Monday, SHFE lead hovered mostly at RMB 13,595-13,620/mt, and closed down RMB 40/mt, or 0.29%, at RMB 13,615/mt. Trading volumes for the SHFE 1412 lead contract shrank 32 lots to 984 lots, but positions gained 6 lots to 9,084 lots.

Chihong Zn & Ge brand was quoted Monday at RMB 13,660/mt, a RMB 60/mt premium to the most active SHFE 1412 lead contract, but was rarely sold. Traded prices were RMB 13,640-13,650/mt for Chengyuan and Nanfang brands, RMB 13,640/mt for Humon brand, and RMB 13,620-13,630/mt for Tongguan brand. Quotations were firm on Monday, but downstream producers were reluctant to buy, out of fears that prices may fall. Trading activity was extremely light on Monday.

A recent SMM survey of 30 industry insiders shows that only 7% of respondents are bullish, expecting LME lead to rise to USD 2,000-2,030/mt and spot lead to edge up to RMB 13,650-13,750/mt this week.

The narrowing LME cash-to-three-month contango points to robust demand in US markets, while LME lead positions have fallen to 117,000 lots, indicating a lack of selling force. In addition, technical indicators are positive for LME lead, and prices are now oversold. As such, lead prices are highly likely to rise this week.

66% of these industry insiders polled by SMM hold that LME lead should hold flat at USD 1,985-2,015/mt and spot lead at RMB 13,600-13,700/mt this week. The US Federal Reserve is expected to exit the quantitative easing (QE) in this week’s policy meeting and will discuss the timing of an interest rate hike. Several Fed officials stated earlier that it is still too early to raise interest rates due to mixed economic indicators even as the US economy is recovering gradually. The policy meeting is forecast to stoke panic among market participants, but risk appetite should grow following the meeting.

In the US, a string of economic indicators, including new home sales for September, durable goods orders, real Q3 GDP growth, and September personal income growth, will be made public this week. The euro zone’s CPI for October is also set to be released.

The remaining 27%, however, believe that LME lead will fall to USD 1,950-1,980/mt and spot lead to RMB 13,550-13,650/mt this week, citing a slowdown in the global economy. On China’s physical lead markets, lead smelters will ramp up sales to increase cash flows in late October, but downstream producers will refrain from buying, which should dent spot prices.