SHANGHAI, Jan. 26 (SMM) – Lead spot premiums in China’s domestic market have kept falling since December 2016. Premiums of Chihong lead have dropped to RMB 100/mt from RMB 500/mt seen in December 2016 in Shanghai, and spot offers by large lead smelters in Henan also approached to premiums at RMB 0/mt. Meanwhile, the price gap between SHFE 1702 lead and SHFE 1703 lead reversed to contango from backwardation, indicating that market players were positive toward forward-month contract rather than near-by contract.
Will spot premiums in China’s domestic market keep narrowing or even turn to discounts after 2017 Chinese New Year holiday?
Many large primary lead smelters will hold online during 2017 Chinese New Year holiday, and meanwhile some large secondary lead smelters in Anhui will also keep operation, despite closures of large amounts of small secondary lead smelters. However, above 90% of downstream battery producers already had their workers take holidays. So, lead supply will be ease in China’s market after the holiday.
Moreover, the backwardation in the LME widened to USD 46/mt for cash-to-three-month lead after LME lead surged recently, a sign of tight spot supply in foreign market. In addition, market players paid high attention to China’s lead ingot export tariff issue, as this will determine the outlook for China’s lead exports, and spot supply in China’s market as well. If the tariff on lead export is removed, exports will be not profitable unless the SHFE/LME lead price ratio drops to 6.65. At present, the price ratio is below 8, so there is low chance to see big exports in a short term, SMM expects.
Hence, SMM expects that there is a big possibility for lead spot price in China’s domestic market to reverse from premiums to discounts after the holiday.
Documents of export tariff and quota for 2017, recently released by China’s Ministry of Commerce, do not mention interim export duty on unwrought lead. So far, there is also no official statement about the 2017 interim export duty on the product. SMM contacted many domestic smelters concerning the issue, and called the relevant government, and got a reply that there is no export duty on the product in 2017. In recent years, China imposes a 10% interim export tariff on unwrought refined lead.