SMM Lead Market Daily Review (2015-1-26)

SHANGHAI, Jan. 27 (SMM) – Lead for March delivery on the Shanghai Futures Exchange, the most active contract, closed down RMB 130/mt at RMB 12,395/mt in last Friday’s night session.

On Monday, SHFE lead dipped to as low as RMB 12,355/mt, dampened by a tumble in SHFE and LME copper, but later rebounded to end down RMB 65/mt, or 0.52% at RMB 12,460/mt. Trading volumes for the SHFE 1503 lead contract shrank 454 lots to 8,034 lots, while positions shed 652 to 16,038.

Supplies from Chihong Zn & Ge traded at RMB 12,550/mt in Shanghai on Monday, a RMB 120-150/mt premium to the most active SHFE 1503 lead contract. Traded prices were RMB 12,500-12,510/mt for Humon and Shuangyan wrapped with plastic, and RMB 12,460-12,480/mt wrapped with iron sheet. Traders scrambled to sell, leaving abundant supplies from Chihong Zn & Ge, Shuangyan and Humon. Downstream producers, however, were unwilling to buy out of fear that lead prices will fall further in the near future in the wake of a sharp fall in SHFE lead. Lead sold for RMB 12,450-12,500/mt in Henan.

53% of 30 industry insiders in SMM’s survey sample expect LME lead to test support at USD 1,800/mt and spot lead prices in China to fall to RMB 12,400-12,550/mt this week, citing three factors.

First, Greece’s leftist party Syriza has won the presidential election held over the weekend for its proposals to scrap the country’s current fiscal austerity scheme and to exit the euro zone. Even if the party finally decides to stay put out of concern for repercussions from its exit from the euro, Greece’s political situations will remain volatile. This should continue to boost the US dollar and in turn depress base metals prices.

Second, falling crude prices and the rising US dollar index have now left base metals markets dominated by pessimism. Copper has gone under considerable selling pressure, with LME copper inventories up to 235,000 mt from 180,000 mt. A fall in the red metal is expected to have a contagion effect on lead prices.

Finally, lead demand is faltering across China’s battery market. Electric bicycle battery producers may close for the Chinese New Year holiday ahead of schedule due to mounting finished-goods inventories. Automotive battery producers also are confronted with high inventories as a warm winter has slowed demand from battery replacements. In addition, demand growth in the backup battery market is meager.

The remaining 47% of respondents expect lead prices to be unchanged this week. LME lead has rebounded to USD 1,850/mt and should move sideways for some time due to support from short-term moving averages. In China, secondary and primary lead output both will fall against shortages of scrap batteries, as well as production halts or maintenance at smelters, which should help cushion lead prices.