SMM Lead Market Daily Review (2015-5-11)

SHANGHAI, May 12 (SMM) – The metal touched Monday’s high of RMB 13,565/mt on China’s interest rate cut and finally finished up RMB 5/mt or 0.04% at RMB 13,495/mt. Trading volumes fell 2,620 to 5,804 lots whereas positions climbed 294 to 15,762.

In China’s spot lead market, Chengyuan, Tongguan, and Nanfang brands quoted at RMB 13,740-13,750/mt, with a premium of RMB 250/mt to SHFE 1505 copper contract prices. Honglu was offered at a premium of RMB 50/mt to SHFE 1506 lead contract, or RMB 13,550/mt. High premiums continued to boost selling interest, but downstream buyers only watched from the sidelines. Smelters in Henan province remained reluctant to sell, quoting RMB 13,700-13,825/mt. Traded prices were RMB 13,410-13,500/mt in Guangdong.

SMM’s survey of 30 industry insiders shows that half of them hold lead prices will fall back this week. On the macro front, markets have digested the news on PBOC’s interest rate cut and a recovery of US nonfarm payrolls. Technically, LME lead has come under strong resistance after rising for seven weeks, and has flipped into a USD 8/mt contango from a USD 15/mt backwardation. In China’s spot market, lead supply will gradually grow after Yuguang Gold & Lead, Jinli Lead, Nanfang Nonferrous and Chengyuan Nonferrous completed maintenances. Besides, unlicensed secondary lead smelters also restarted production. Meanwhile, lead-acid battery industry has entered an offseason. As such, these market players expect LME lead to fall to USD 2,000-2,050/mt and spot lead prices to drop to RMB 13,500/mt this week.

20% of these respondents remain bullish that LME lead will climb to USD 2,080-2,100/mt and spot lead prices will rise to RMB 13,700-13,900/mt, arguing that China’s interest rate cut will bring more liquidity to commodities and stock markets. Besides, spot premiums in Shanghai have risen to RMB 200-250/mt driven by tight supply. Many primary lead smelters have not yet resumed production, and secondary lead production will be curbed by environmental protection inspections, meaning supply should remain limited, boding well for prices.

The remaining 30% of industry participants expect prices to stay in the current range, considering a lack of major reports. These participants also noted that strong caution among short sellers and relatively tight supply will prevent prices from falling sharply.