SMM Lead Market Morning Review (2015-1-20)

SHANGHAI, Jan. 20 (SMM) – LME lead overnight started at USD 1,843/mt in the Asian trading session, and rallied to USD 1,867.5/mt in the European trading session. The price of the soft metal fell afterwards, pressured by a renewed decline in crude prices, and closed up only USD 4.75/mt at USD 1,850/mt. Trading volumes for three-month lead on the London Metal Exchange decreased 1,168 lots to 3,760 lots, but positions gained 2,038 to 19,958. LME lead inventories shed 100 mt to 215,725 mt on Monday.

Lead for March delivery on the Shanghai Futures Exchange, the most active contract, opened at RMB 12,400/mt in Monday’s night session and then advanced to RMB 12,480/mt. The price of the SHFE 1503 lead contract later retreated to RMB 12,400/mt amid growing profit-taking by longs and ended up RMB 20/mt at RMB 12,400/mt. During the night session, trading volumes for the most active contract amounted to 5,326 lots, while positions shrank 666 to 19,958.

Iraq’s oil minister Adel Abdel Mehdi stated January 18 that the country’s crude output hit a record high of 4 million barrels per day in December due to increased production both in the south and north. Iran’s oil minister indicated that the OPEC has no immediate plan to cut its output target for crude, and his country is strong enough to withstand a deeper slump in prices even if the country must sell at USD 25/bbl. In response, Brent crude closed down 2.7% at USD 48.84/bbl, while NYMEX crude for February delivery ended down 2.40% at USD 47.52/bbl on Monday.

The Shanghai Composite Index tumbled 7.7% on Monday. The China Securities Regulatory Commission reported at a press conference that its latest drive to crack down on margin lending at securities brokerages is not to constrain stock markets.

Chinese Premier Li Keqiang stated at a plenary meeting of the State Council on Monday that the economy continues to face tremendous pressure this year, raising concerns over China’s Q4 GDP growth. Markets expect the Chinese economy to have grown 7.3% in the final quarter of last year, slowing down from Q3, which reignited worries over China’s demand for base metals and crude.

US Federal Reserve officials are likely to repeat in their statement that they can “be patient” about rate increases at the Federal Open Market Committee meeting (Jan. 27-28). This means that the Fed may keep interest rates unchanged ahead of this June, given that the 10-year Treasury yield has fallen below 2% and inflation remains under its target.

French President Francois Hollande indicated on Monday that the European Central Bank (ECB) will announce to purchase sovereign bonds in the euro zone this Thursday. Expectations of quantitative easing by the ECB grew again. Greece’s presidential election, due to be held on Friday, is also worth noting.

US stock market closed for Martin Luther King Jr. Day on Monday. European stocks rose, but Asian stocks finished lower across the board. LME lead ended slightly higher, but other base metals fell.

The renewed declines in crude prices have rekindled worries over base metals. China’s Q4 GDP, due for release Tuesday, is estimated to grow at a pace slower than Q3. The Chinese government is also expected to cut its 2015 GDP growth target to 7%.

As such, LME lead is set to hover at USD 1,830-1,870/mt, while the most active SHFE 1503 lead contract is expected to move at RMB 12,300-12,500/mt on Tuesday. Spot lead prices in China should range between RMB 12,450-12,550/mt.