SMM Lead Market Daily Review (2015-4-20)

SHANGHAI, Apr. 21 (SMM) – The most active SHFE 1506 lead jumped to RMB 13,600/mt Monday from RMB 13,490/mt last Friday’s evening session as the People’s Bank of China (PBOC) announced to cut the reserve requirement ratio (RRR) on Sunday.

But later SHFE lead prices fell back slowly, ending at RMB 13,565/mt, up RMB 5/mt, after the good news was absorbed. Positions dropped 1,156 to 16,558 as shorts and longs booked profits.

Quotes were RMB 13,850-13,900/mt for lead of Chihong Zn & Ge, and about RMB 13,780/mt for Chengyuan’s goods early on Monday, but then retreated to RMB 13,650/mt for Chengyuan and Tongguan brands, with premiums of RMB 60-100/mt to SHFE 1506 lead contract. Humon offered RMB 13,580-13,610/mt and Shuangyan brand quoted at RMB 13,560/mt. Tongguan and Humon moved goods in small amounts. Traders bought actively, and downstream producers mainly purchased cheaper goods. Spot goods available in the Henan market were few, and branded lead was quoted at RMB 13,600/mt. Premiums in Hunan and Jiangxi also increased.

SMM’s survey of 30 industry insiders indicates that only 33% of them are still optimistic about lead prices. These players believe LME lead will rise to USD 2,100/mt and spot lead prices to RMB 13,600-13,700/mt this week.

A sequence of economic indicators are due for release this week, including HSBC’s China manufacturing PMI for April, US new home sales and durable goods orders for March, Markets are now upbeat about Chinese data but pessimistic about US economic indicators. Base metals are likely to take impetus from rebounding crude oil, China’s monetary easing and a weak US dollar.

Furthermore, the increase in canceled warrants and growing net long positions in lead, as well as positive technical indicators are pointing to further rises in lead prices.

In China’s lead market, spot premiums held elevated due to tight supply. Prices in Jiangxi and Henan were RMB 20-100/mt higher than SMM lead prices.

30% of the surveyed are bearish that LME lead will fall back to USD 2,000/mt and spot lead prices will be RMB 13,300-13,500/mt. These players argue that base metals prices did not show significant increase following China’s RRR cut, meaning the positive news has been priced in.

Technically, LME lead has met resistance and may present a correction.

The remaining 37% market players expect lead prices to remain stable this week, noting that price moving range will be restricted after investors shifted to Chinese stock markets. In spot market, lead prices may lack momentum to rise further following recent RMB 1,000/mt surge and with both buyers and sellers unwilling to budge on prices.