SMM Lead Market Morning Review (2015-1-14)

SHANGHAI, Jan. 14 (SMM) – LME lead started Tuesday at USD 1,865/mt and slipped to USD 1,850/mt in the Asian trading session, depressed by China’s worse-than-expected trade data. During European and US trading hours, the price of the soft metal fell to an intraday low of USD 1,814/mt and closed down USD 44/mt at USD 1,817/mt. Trading volumes for three-month lead on the London Metal Exchange gained 414 lots to 4,594 lots, while positions added 2,625 to 119,923. LME lead inventories decreased 4,325 mt to 215,825 mt on Tuesday.

Lead for March delivery on the Shanghai Futures Exchange, the most active contract, initially tumbled to RMB 12,000/mt in Tuesday’s night session, but later recouped some losses to end at RMB 12,100/mt. Trading volumes for the SHFE 1503 lead contract totaled 6,092 lots, while positions increased 614 to 26,194.

China Customs reported Tuesday that China’s imports and exports grew 2.3% to RMB 26.43 trillion last year, falling much short of a 7.5% increase targeted. Growth in the country’s imports and exports thus has missed annual targets for a third straight year. Director of the General Administration of Customs indicated that the worse-than-expected trade data underscores pressure from unfavorable domestic and external conditions on the Chinese economy. The People’s Bank of China (PBOC) was rumored to have renewed some RMB 280 billion of expired Medium-term Lending Facility (MLF) to ensure stable liquidity.

The National Federation of Independent Business (NFIB) reported Tuesday that its Small Business Optimism Index rose 2.3 points to 100.4 in December, the highest since October 2006 and above 100 for the first time in eight years. US job openings surged in November to the highest in almost 14 years, pointing to a sustained recovery in the US labor market. The inspiring economic indicators helped push the US dollar index up 0.29% to 92.27. US stocks, however, closed lower again on Tuesday. The Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options, rose nearly 20% in the past two days to over 20. Investors rushed to move capital to the bond and precious metals markets, putting considerable pressure on the commodities market.

UK CPI rose 0.5% YoY in December, posting the smallest growth in 14-1/2 years. Before being seasonally adjusted, the country’s PPI fell 2.4% MoM and 0.8% YoY, while PPI rose only 0.8% YoY over the same month. The European Central Bank (ECB) was reported to threaten a withdrawal of bailout funds toward Greece’s possible exit from the euro zone.

United Arab Emirates oil minister stated Tuesday that the Organization of Petroleum Exporting Countries (OPEC) decided to leave oil output unchanged. The oil minister also advised other oil producers out of the OPEC to adjust output according to supply growth in the crude oil market. Goldman Sachs and Societe Generale both cut their projections for oil prices and cautioned surpluses in global crude oil market this year. West Texas Intermediate (WTI) crude oil closed down 0.4% at USD 45.89/bbl on Tuesday. Moody’s, a credit rating agency, cut Venezuela’s sovereign credit rating by two notches, citing that plummeting oil prices have markedly increased the country’s default risks. This has revived concerns over the emerging economies.

LME base metals closed lower across the board on Tuesday, with copper and nickel down over 4%. The latest CFTC report shows that net short positions on copper rose to 41,265 the week ending January 6, pointing to a bearish outlook toward copper prices.

Base metals markets now are dominated by pessimism as tumbling crude oil and a stronger US dollar have resulted in a sharp fall in copper. LME lead is expected to move at USD 1,790-1,830/mt, while the most active SHFE 1503 lead contract is set to hover at RMB 11,950-12,150/mt on Wednesday. Spot lead prices in China should range between RMB 12,350-12,500/mt.