SMM Lead Market Daily Review (2015-6-23)

SHANGHAI, Jun. 24 (SMM) - SHFE 1508 lead opened at RMB 12,850/mt during Tuesday trading session. HSBC’s China manufacturing PMI for June were better than forecast, supporting SHFE lead prices. The most trading contract edged up due to rising longs, to finish up RMB 120/mt at RMB 13,080/mt. Trading volumes totaled 3,100 lots and positions increased 118 to 13,032.

China’s high spot premium of about RMB 350/mt still remains despite the weak demand, leaving room open for a rise in SHFE lead prices. Warrants on SHFE are only 17,000 mt, much lower than positions. Though primary lead smelters finish maintenance, their production will be limited by liquidity and losses.

In China’s spot lead market, spot premiums narrowed to RMB 350/mt for Tongguan, Nanfang and Chengyuan brands over SHFE 1508 lead at RMB 13,350-13,380/mt, versus RMB 13,250-13,340/mt for Shuangyan (packed in iron) and older Honglu brand goods.

Tongguan Non-ferrous and Hechi Nanfang Non-ferrous Metals Group moved goods out while Hanzhong Zinc Industry Co. and Baiyin Non-ferrous Group quoted high prices. A small number of small lead-acid battery producers built some stocks, but trades failed to pick up as a whole.

Branded lead in Henan was offered at a discount of RMB 50-100/mt against SMM #1 lead average price. Lots of delivered goods quoted RMB 13,170-13,200/mt in Guangdong market. Branded lead in Hunan was offered RMB 70-160/mt lower than SMM #1 lead average price.

SMM surveyed 30 industrial insiders to find that 47% of them see LME lead to fall to USD 1,750/mt this week and Chinese spot lead will drop to RMB 13,200-13,300/mt. On the macro side, Greece debt crisis failed to make progress on Monday and hence, eurozone meeting will be held again this Thursday, fueling investors’ risk aversion before Thursday. US dollar will hence be boosted, boding ill for metals prices. China government bond interest rate rise continually near late June, which mirrors tightness in liquidity, depressing metals prices again.

LME lead stocks surged 30,000 mt previously and investors believe that 100,000 mt stocks shifted away late March will return gradually. LME cash-to-three month contango hit this year’s high. Also, longs continued to exit market. Thus, LME lead should test support at USD 1,750/mt.

In China’s spot market, imported lead concentrate profits widened to over RMB 1,000/mt (Pb content) versus Chinese concentrate, stimulating primary lead smelters to increase production. Besides, smelters will rush to sell against tight liquidity in June, driving supply up. But downstream producers generally cut production on poor end-user consumption. Spot prices will thus be weighed on.

46% market players believe that lead prices will remain flat. Eurozone officials and Greece’s Finance Minister expressed on Monday that they are confident in Thursday’s negotiation and markets sentiment turns a little better, supporting metals prices. Pressures from mounting inventories for LME lead has eased with stocks dropping more than 10,000 mt since June 15 and support emerges at USD 1,800/mt. Therefore, LME lead should move around USD 1,800/mt and RMB 13,300-13,400/mt for Chineses spot lead.

Chinese high spot premiums still remain despite the weak demand. Shortage in secondary lead, resulting from limited scrap batteries, will also lend support to lead prices.

The rest 7% are bullish that LME lead will rebound slightly to USD 1,800-1,830/mt and Chinese spot lead to RMB 13,350-13,450/mt.