SMM Lead Market Daily Review (2015-9-7)

SHANGHAI, Sept. 8 (SMM) – SHFE 1511 lead followed Chinese stocks up to RMB 13,425/mt after the open of Monday trading session but then fell back to RMB 13,300/mt, to end at RMB 13,310/mt, up by RMB 45/mt. Trading volumes totaled 3,138 lots with positions down 122 to 14,884.

On Monday, Nanfang and Chengyuan brands were offered at RMB 13,440-13,460/mt, RMB 120/mt above SHFE 1511 lead but far below SHFE 1509 lead. This stimulated traders to purchase for delivery. Mainstream traded prices were RMB 13,430-13,440/mt for Humon and Hanjiang brands, versus RMB 13,410-13,420/mt for goods produced by Mengzi Mining & Metallurgy.

Market supply was sufficient thanks to shipment from Hechi Nanfang Nonferrous Metals Group, Shandong Humon Smelting, Western Mining and Mengzi Mining & Metallurgy. Transactions were mainly done for Mengzi brand lead.

SMM surveyed 30 market players to learn that 20% of them expect LME lead to return to USD 1,700/mt this week and SHFE lead to test resistance at RMB 13,450/mt. In terms of supply, In China’s spot lead market, some smelters, including Wanyang Group’s crude lead production line, West Mining and Huludao Nonferrous Metals Group, started a maintenance cycle late August. Additionally, inventories at Henan’s lead smelters are at a low level with slight discounts.

Domestic lead stocks also continue to fall, boosting bullish sentiment. Inventories in Shanghai and Guangdong decreased 1,171 mt and 748 mt late August from late July. Secondary lead supply still tightens. Anhui Huaxin Lead Industry Group, the largest secondary lead smelter in China, shut down all its old furnaces but put no new capacity online. Many irregular lead smelters in Shandong are closed owing to environmental protection crackdowns and light profits. Therefore, overall supply shortage in domestic market will support lead prices. Technical indicators also point upside.

27% of investors are bearish. They see LME lead to test support at USD 1,640/mt this week and spot lead to fall below RMB 13,300/mt. They point out that demand stays weak even in the traditional peak season. A new round of price cut, by leading motive battery makers, starts again. This depresses operating rate at mid-sized and small battery makers and also reflects a difficulty in battery selling. SMM learns that some mid-sized and small lead-acid battery makers are sitting on mounting inventories and even take holidays.

One large battery producer noted that ignition battery orders start dropping since this month and this will cut lead consumption by 1,200 mt per month. As such, lead prices will be weighed down.

The remaining 53% believe that LME lead will move between USD 1,660-1,700/mt this week and spot lead will trade at RMB 13,300-13,450/mt citing mixed reports. US non-farm payrolls missed forecast but unemployment rate hit a lowest since April 2008. Thus, the timing of US Fed rate hike stays uncertain. China releases a series of measures to rescue its stock market but panic in market will not fade in short term. Moreover, lead supply will decline whereas demand remains poor. Consequently, lead prices should fluctuate in current ranges this week.