SHANGHAI, Aug. 18 (SMM) – On Monday, SHFE lead drifted lower to RMB 13,170/mt due to expectation for crude oil oversupply and downbeat data from China and euro zone. But later, the contract reached RMB 13,395/mt as China’s A-shares jumped and shorts exited market and ended at RMB 13,375/mt, growing RMB 80/mt. Trading volumes were up 808 to 5,344 lots with positions up 414 to 18,664.
Mainstream prices were RMB 13,270-13,300/mt for Nanfang, Humon, YT and Yuteng brands in Shanghai market, RMB 40-70/mt higher than SHFE 1510 lead. Only Humon brand goods flowed into market on Aug. 17 while downstream buyers watched from the sidelines. Thus, market saw light trades.
40% market players expect LME lead to fall below USD 1,720/mt and Chinese spot lead to drop to RMB 13,000/mt this week. They point out that SHFE lead posted a large rise last week thanks to depreciation of Chinese yuan while LME lead stayed stable. Thus, the high SMM/LME lead price ratio should fall back this week and SHFE lead prices will also slip.
Besides, chance of short squeeze will disappear after delivery of SHFE 1508 lead contract, boding ill for lead prices. Downstream operating rate also failed to pick up. Average operating rate at lead-acid battery makers was 66.25% in July, down 2.08 percentage points MoM and 5.08 percentage points from 71.33% in July 2014. As a result, downstream demand for lead will be curbed. Some refined lead smelters note that even though they lower their price offers to sell, downstream purchase still stays anemic. As such, lead prices should be set for drops this week.
60% of respondents see lead prices hold flat this week. Economic figures should be mixed this week, including US’s housing price index for August, home starts for July and the flash data of Caixin's manufacturing PMI in August for China. Strong resistance emerges at the 5 and 40-day moving averages for US dollar and thus dollar may stay low. This, combined with weak fundaments, will make lead prices fluctuate this week.
Moreover, secondary lead output in places near Beijing is cut by the Sep. 3 parade in Beijing. Environmental protection crackdowns also decrease secondary lead production in Jiangxi and Guangdong. Consequently, some lead-acid battery makers will buy more refined lead. But the rising momentum of lead prices may stay weak and trades are expected to hold flat this week.
Therefore, LME lead should range narrowly between USD 1,710-1,770/mt this week and Chinese spot lead will stay between RMB 13,100-13,400/mt.