SMM Lead Market Daily Review (2015-10-26)

SHANGHAI, Oct. 27 (SMM) – SHFE 1512 lead ranged between RMB 13,180-13,280/mt on Monday and ended the day at RMB 18,235. Trading volumes fell 1,788 to 5,270 lots and positions dropped 224 to 13,968.

In Shanghai, Jinsha brand quoted RMB 180/mt above SHFE 1512 lead at RMB 13,380-13,400/mt on Monday with deals made at RMB 13,380/mt. Traded prices were RMB 13,360/mt for Chengyuan and Nanfang brands, versus RMB 13,330-13,350/mt for Humon brand.

 Humon brand lead was moved to market, leaving spot supply unchanged. Weak lead prices triggered wait-and-see sentiment in market. Besides, price edge of secondary refined lead attracted more buyers, cutting demand for primary lead.

SMM survey of 30 market players shows that 7% of them are bullish towards lead price and they see LME lead to stabilize at USD 1,780/mt this week and SHFE 1512 lead to challenge at RMB 13,350/mt. The People's Bank of China (PBOC) announced to cut the country's benchmark lending rate by 0.25 percentage point to 4.35% on October 23. The PBOC also cut the reserve requirement ratio (RRR) for all banks by 0.5 percentage point. This will increase liquidity in market, supporting lead prices. Besides, the 5th Plenary Session of the 18th Central Committee of the CPC will be held on October 26-29 and this will help improve market sentiment, bolstering lead prices.

40% of investors are bearish towards lead prices and they expect LME lead to fall to USD 1,700/mt this week and SHFE 1512 lead to test support at RMB 13,100/mt. US interest rate is largely expected to be unchanged at 0-0.25% at the October 27-28 policy meeting. But US dollar posted a large rally last week and thus should remain at highs this week, containing lead prices. 

Moreover, TCs for domestic lead concentrate head for gains continually with TCs up RMB 100/mt (Pb content) in November. This stimulates lead smelters to increase production, leaving supply ample. Additionally, lead smelters move more goods to market this week. Jiyuan Wanyang Smelting Group starts to ship goods to market on Monday after two months’ no shipment to market. Guiyang Yinxing Nonferrous Metals also move goods to market on Monday following maintenance. Meanwhile, no smelters will execute maintenance this week, growing supply. This will depress lead prices. Motive batteries enter a slack season and thus consumption stays weak, dragging down demand. Some assemblers also cut operating rate to 20% besides the operation cut at leading motive battery makers.

The rest 53% respondents point out that LME lead will still move around USD 1,700/mt this week and spot lead will trade at RMB 13,250-13,400/mt. SHFE 1512 lead meets resistance at the 5-day moving average and meanwhile finds support at the 40-day moving average. Technical indicators point downside. But the holding of the 5th Plenary Session of the 18th Central Committee of the CPC and China’s interest rate and RRR cut will help improve market sentiment.

Most secondary lead smelters halt operation currently due to stricter environmental protection inspections in Shandong, Henan and Hebei. In the meanwhile, production fell at Baoding Gangan Nonferrous and Henan Yuguang Gold & Lead, tightening secondary lead supply. But secondary lead prices may be dragged down by growing scrap battery supply, resulting from low operating rate. As such, secondary lead prices are likely to stabilize and thus lead prices will also head for stabilization.