SHANGHAI, Nov. 22 (SMM) – The SHFE/LME lead price ratio has increased sharply following price surge on SHFE lead market recently. Suppliers in China’s domestic spot market hold back sales due to tight supply, with firm offers, sending spot premiums up to 500 yuan per tonne briefly against SHFE three-month lead. Rising price ratio and high spot premiums have put lead import market, which has been silent for many years, under spotlight.

“In the short term, profit space for lead imports will be limited despite the rise in the price ratio, which has approached to a critical point,” SMM lead analyst points out.

Surging Spot Lead Stimulates Downstream Stock-Building Demand, SMM Surveys

As of noon on Nov. 22, the SHFE/LME lead price ratio was at 8.6 based on SHFE 1612 lead price at 19,065 yuan per tonne and LME lead at $2,207 per tonne. SMM lists lead import tariff in the table below, and also calculates when profits will be available at what price ratio (LME lead: $2,207 per tonne and Chinese yuan exchange rate: 6.89)

For tariff at 3 per cent, CIF will be 19,230 yuan per tonne, and the SHFE/LME lead price ratio should be at 8.7.

For tariff at 1.8 per cent, CIF will be 19,009 yuan per tonne, and the SHFE/LME lead price ratio should at be 8.61.

For tariff at 0 per cent, CIF will be 18,676.49 yuan per tonne, the SHFE/LME lead price ratio should be at 8.46.

According to the calculation, it is unprofitable to import goods from most-favored nations at the current price ratio, while conditions are different for South Korea and Australia, as the current ratio seems favorable. But, it needs fussy applications for imports because of country-to-country trade agreement. Meanwhile, Australia has no warehouses, making it unable to track goods volumes.

Moreover, domestic traders will meet difficulties in looking for trading partners after the lead import market stayed silence for many years. Data show China exported 221 tonnes of lead from January to September 2016, with few imports. 

In addition, traders will be exposed to price risks as imported lead are unable to be delivered to domestic warehouses, and qualities of imported goods will be also another problem due to impurities in imported lead.

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