SHANGHAI, Mar. 29 (SMM) – Lead prices has dropped to 17,500 yuan per tonne at present from highs after mid-February. SMM attributes two factors behind the decline.
First, demand is sluggish in China’s market due to downstream consumption off-season. SMM learns that battery promotions makes limited effect on battery consumption with poor demand at end-user market. This, combined with falling lead prices, raised distributors’ risk aversion sentiment. Distributors thus reduce purchases, growing inventories at battery producers, which can be used for more than 30 days at some producers. Hence, battery producers cut output further.
Second, SMM #1 lead remains discounts at 0-200 yuan per tonne in China’s spot market, against SHFE 1705 lead. In addition, it is learned that discounts of secondary refined lead widens to 700 yuan per tonne in some regions, against SMM #1 lead. Traders are active in selling but demand is sluggish. Moreover, imports of lead ingot increased sharply in February with opening of import window.
Hence, lead supply sees a surplus in China’s market after 2017 Chinese New Year holiday.
Besides, hedging at some lead smelters, resulted by poor demand of spot lead, also weighs down lead price.
SMM expects lead oversupply to continue for the foreseeable future.
Primary lead output is predicted to keep rising slightly in March and April. Moreover, inventory in Guangdong and Shanghai stabilizes after 2017 Chinese New Year holiday. In addition, as raw material supply is sufficient in China’s market, no secondary lead smelters is heard to cut output or close down at present. But, profits at secondary lead smelters have narrowed after lead price dropped. Some small secondary lead smelters shut down in some regions due to environmental protection inspections. Secondary lead supply is ample in China’s market as a whole. Furthermore, downstream off-season will remain to May and most battery producers plan to slash output further with pessimistic sentiment.
On the other hand, discounts of spot lead will narrow after SHFE 1705 lead drops sharply, stimulating market speculative sentiment, which will sell spot goods after closing positions on futures market. This, combined with entering of speculative capitals, will lead SHFE 1705 lead to rally briefly.
To sum up, SMM expects lead price to remain falling territory for a short term.
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