SMM Lead Market Daily Review (2015-6-1)

SHANGHAI, June 1 (SMM) – SHFE 1507 lead followed LME lead down RMB 145/mt to end at RMB13,235/mt during night session Friday. The contract regained earlier losses on Monday as China’s PMI was 50.2 in line with forecast and as China’s A-share rose over 4%, to finish down RMB 95/mt at RMB 13,285/mt.

In spot market, Nanfang, Chengyuan and Shuangyan (packed in plastic) brands quoted at RMB 13,850-13,890/mt, versus RMB 13,400/mt for Shuangyan (packed in iron) and Honglu brands, and RMB 13,840/mt for Hanjiang brand, RMB 570/mt higher than SHFE 1507 lead contract prices.

Lead smelters allowed no goods to flow into market and most goods from Guangdong currently have been used to fill downstream orders. Thus, spot supply in Shanghai still remained tight.

Downstream producers replenished stocks early this month and some purchased to need for fear of a price fall. Trades still muted today.

Branded lead in Henan was offered a RMB 50-100/mt premium over SMM lead prices with goods trading at RMB 13,400-13,500/mt in Guangdong.

30% of industry insiders surveyed by SMM are bearish towards lead prices this week, expecting LME lead to fall to USD 1,900/mt and spot lead prices in China down to RMB 13,550-13,700/mt. Markets are upbeat about May’s ISM PMI data and nonfarm payrolls due out this week. Besides, the growing concern over a Greek default will push down the euro. Both factors will lend support to the US dollar index. In China, the stock market slumped last Thursday, triggering strong caution in financial markets.

In addition, cancelled warrant ratio for LME lead has declined to less than 20% from 40-50%, and a USD 16/mt contango was reported, boding poorly for LME lead prices.

In China’s lead market, supply is set for a rise after a number of smelters resumed operations, while lead demand will decline with operating rates at motive and ignition battery producers falling. In this context, spot premiums in lead market will face a pullback after holding high for nearly a month. Furthermore, companies will feel greater financial pressures as their loans are due for repayment at the middle of the year, which will prompt them to move goods actively.

17% of industry participants remain bullish that LME lead will rise to USD 1,950-1,980/mt and spot lead prices will increase to RMB 13,600-13,800/mt. Both Greek government and its creditors played down fears of a Greek default, and the euro is expected to strengthen should the two parties manage to reach a deal this week.

In China, investors are optimistic about stock price outlook for the long run, and sufficient liquidity conditions may allow players to invest in metal markets, enlivening metal trading.

As for market fundamentals, despite growing primary lead supply, operating rates at secondary lead smelters were relatively low due to thin profits and environmental protection inspections, which will bolster spot lead prices.

The remaining 53% expect LME lead prices to stay at USD 1,910-1,990/mt and SHFE lead to remain in the RMB 13,150-13,450/mt range, arguing that technical indicators point to directionless prices.