SHANGHAI, Nov. 24 (SMM) – This week, China’s lead prices gather rising strength, with SHFE 1612 lead soaring to 20,425 yuan from 17,875 yuan per tonne in early week, up 14.2 per cent in total in a week.
“Availability of deliverable-brand lead is low in spot market, giving a chance for investors to push up SHFE 1612 lead,” SMM lead analyst says.
At present, positions of SHFE 1612 lead are 8,940, which needs 22,350 tonnes of lead ingot for deliveries, and as of November 18, SHFE lead inventories were 22,788 tonnes, including 16,714 tonnes for futures market, according to official data.
In China’s domestic market, tight supply available for deliveries has inflated spot prices against SHFE lead both in Shanghai and Henan markets, SMM notes.
In Henan, some lead smelters have cut output due to environmental protection inspections, and meanwhile, ore supply is also tight. Hence, lead smelters in Henan chose to sell goods mainly under term contracts and made no spot transactions due to insufficient inventory. Spot premiums of deliverable-brand lead are near 400-500 yuan in Henan market.
Moreover, domestic lead mines are unable to prolong operation time due to cold weather, so ore tightness is not expected to ease in the short term. And this will negatively affect lead ingot output.
“The surge on SHFE 1612 lead now is familiar with the one seen in early 2016, when supply was also in shortages,” SMM lead analyst adds.
At that time, lead supply and transportation were negatively affected by the week-long 2016 Chinese New Year holiday in early February, and meanwhile, Feb. 5 was the last trading day for SHFE 1602 before the holiday, and Feb. 15 was the first trading day after the holiday and was also the delivery date of the contract. Moreover, positions of SHFE 1602 lead were 4,440, and this needed 11,000 tonnes of goods for deliveries, while SHFE lead inventories were only 8,904 tonnes on that day.
All these pushed up lead price in early 2016, when SHFE 1602 lead climbed above 14,000 yuan from 12,800 yuan within two weeks, and spot prices rose from 13,000 yuan to 14,000, according to SMM data.
As longs took profits and normal operation by logistics enterprises after Lantern Festival in late February, the round of price surge by making use of supply shortages came to an end.
“The key factor behind the latest round of price surge is supply deficit, and the impact on price will be more evident than that in early 2016, as supply shortages are not expected to ease in the short term” SMM predicts.
The shortages, a result of ore shortage, environmental factor, winter production halts at mines and upcoming peak demand season, will help spot premiums hold firm in China’s domestic market.