SMM Lead Market Daily Review (2015-1-12)

SHANGHAI, Jan. 13 (SMM) – Lead for March delivery on the Shanghai Futures Exchange, the most actively traded contract, opened last Friday’s night session at RMB 12,350/mt and then fluctuated at RMB 12,300-12,350/mt. The price of the SHFE 1503 lead contract followed LME lead up to RMB 12,455/mt at some stage and closed down RMB 70/mt at RMB 12,350/mt. Trading volumes for the most active contract totaled 10,180 lots in the night session.

SHFE Lead moved at RMB 12,360-12,380/mt early on Monday and sank to RMB 12,325/mt at the tail of the trading before ending down RMB 85/mt at RMB 12,335/mt. Trading volumes for the SHFE 1503 lead contract reached 13,684 lots, while positions added 218 to 24,430.

Supplies from Chihong Zn & Ge and Humon in Shanghai traded Monday at RMB 12,520-12,530/mt, an around RMB 150/mt premium to the most active SHFE 1503 lead contract. Traded prices were RMB 12,480/mt for Shuangyan. Lead supply in Shanghai was modest on Monday since only Chihong Zn & Ge, among all smelters, reported sales in the region. Smelters in Henan rushed to sell and quoted prices lower at RMB 12,420-12,500/mt, prompting some downstream producers to source raw material from this province. As a result, trading was sluggish in Shanghai on Monday.

23% of industry insiders in SMM’s survey sample expect LME lead and China’s spot lead prices to fall to USD 1,820/mt and RMB 12,400-12,500/mt, respectively, this week.

These industry insiders base such a bearish outlook partly on a strengthening US dollar. The US economy is showing strong momentum. The euro zone, however, confronts uncertainties over the launch of quantitative easing and Greece’s upcoming presidential election.

Meanwhile, lead prices may be dragged down by the price of zinc – derived from lead-zinc concentrate – as the S&P GSCI and BCOM index reweighting is short on zinc and copper.

In China, smelters are selling aggressively against the year-end liquidity crunch, but downstream buyers are unwilling to build input inventories due to lackluster end-consumer demand. Many small downstream producers may close for the Chinese New Year holiday earlier than scheduled, exerting further drag on lead demand. These dispiriting fundamentals in lead should depress prices.

Only 3% of respondents are bullish this week, expecting that LME lead will rise to USD 1,880/mt, and spot lead prices in China will climb to RMB 12,500-12,700/mt.

On the macroeconomic front, Venezuela and Iran, two members of the Organization of Petroleum Exporting Countries (OPEC), have been reported to work more closely with each other to counter the fall of the crude price. This, together with reports that some US shale oil companies have begun filing for bankruptcy, will help crude oil prices stabilize and in turn undergird base metals prices.

In addition, the S&P GSCI and BCOM index reweighting is expected to push LME lead positions up by 406, which should help boost market sentiment amid strong selling on zinc, nickel and aluminum.

Despite persistently weak battery demand, Chinese lead-acid battery producers are expected to operate this month at higher capacity as their cash tightness has eased. This should give a boost to lead demand. With regard to supply, China’s refined lead output should decline in January as more and more primary and secondary lead smelters join in production cuts or suspension. The positive demand and supply dynamics should speak well to lead prices this week.

The remaining 74% of industry insiders hold that LME lead will hover narrowly around USD 1,850/mt and China’s spot lead prices will hold at RMB 12,500/mt this week amid mixed news. Crude oil prices are expected to gain some support should reports prove true that Iran and Venezuela will work to prevent oil prices falling further. However, Greece’s upcoming presidential election continues to pose uncertainties to world’s financial markets. These industry insiders also argue that supply and demand in China’s spot lead markets have reached equilibrium.