SMM Lead Market Morning Review (2014-12-17)

SHANGHAI, Dec. 17 (SMM) – LME lead started Tuesday at USD 1,963.5/mt and fell USD 50/mt at USD 1,917.5/mt against a rash of discouraging macroeconomic news. Trading volumes for three-month lead on the London Metal Exchange gained 2,448 lots to 5,703 lots, but positions shed 3,468 lots to 116,272 lots. LME lead inventories shrank 350 mt to 219,825 mt on Tuesday.

Lead for February delivery on the Shanghai Futures Exchange, the most active contract, dipped to RMB 12,825/mt after opening Tuesday’s night session at RMB 12,990/mt and finished down RMB 250/mt at RMB 12,835/mt. Trading volumes for the SHFE 1502 lead contract surged 2,318 lots, while positions expanded 506 lots to 12,022 lots. Despite some buying force, lead prices are unlikely to level out into the near future against a tumble in crude and prevailing risk aversion sentiment.

HSBC’s China flash manufacturing PMI, published on Tuesday, slid to 49.5 in December, short of 49.8 expected and below 50 for the first time in seven months. The sub-index tracking industrial production, however, rose from 49.6 in November to a 2-month high of 49.7 for the same period. The slowdown in China’s manufacturing activity points to sluggishness in the economy towards year’s end. Growing disinflation pressure from soft demand may prompt the government to further loosen its monetary policy in the next few months.

The euro zone’s preliminary manufacturing PMI came in at refreshed 5-month high of 50.8 in December, beating the estimated 50.5 and November’s 50.1. The single currency area’s service and composite PMIs were 51.9 and 51.7, respectively, both exceeding forecasts and readings in November. Germany’s flash manufacturing PMI was reported at 51.2, higher than the expected 50.3 and November’s 49.5, while its service PMI disappointed by sinking to a new 17-month low of 51.4. The composite PMI in the largest European economy also slipped to a new 18-month low of 51.4, missing expectations. These downbeat economic indicators fueled concerns over the euro zone’s economy.

US Markit flash manufacturing PMI slid to 53.7 in December, a low it last made in January. The slowdown in the country’s manufacturing activity expansion is likely to hurt its Q4 GDP growth.

Despite an interest rate hike by Russia’s central bank, Rouble depreciated over 19% at one stage on Tuesday, but later recouped a chunk of losses, helped by a rally in oil prices. The White House reported on the same day that US plans to unleash a new round of sanctions on Russia which target mostly Russian defense companies.

Oil prices closed up USD 0.02/bbl at USD 5.93/bbl on Tuesday. Gold ended up 0.34% at USD 1,197.36/oz. US stocks fell across the board, whereas European stocks rebounded slightly. LME base metals finished lower, with lead, tin, nickel down over 2%.

Base metals prices should trend lower on Wednesday against falling crude and growing risk aversion sentiment. LME lead is expected to test support at USD 1,900/mt and hover at USD 1,900-1,930/mt, while the most active SHFE 1502 lead contract is set to fluctuate at RMB 12,750-12,900/mt. Spot lead prices in China should range between RMB 13,050-13,200/mt on Wednesday.