SHFE Lead Prices down 6.93% on Negative Fundamentals, SMM Learns

SHANGHAI, Apr. 7 (SMM) – SHFE 1705 lead dived sharply during afternoon trading on Friday. The contract dipped below 17,000 yuan per tonne and approached to 16,000 yuan per tonne, down 6.93%, underperforming base metals.

SMM learned from lead smelters and battery producers that negative fundamental was the main factor behind the plunge. During the afternoon trading, shorts strengthened while longs closed positions, sending SHFE 1705 lead down. But market players were divergent on price outlook after the contract dipped to 16,000 yuan per tonne and SMM detailed factors behind lead price movement as follows.

Breaking News: What Triggers Wide-Spread Declines in China Base Metals Market on Friday? SMM Reports

First, many domestic primary lead smelters will have maintenance or cut output in April. According to SMM’s latest survey, output at China’s primary lead smelters will be slashed 12% in April on a monthly basis. (See details in the next Lead Weekly Report) Second, SMM survey learns that some downstream battery producers plan to buy goods with price at around 16,000 yuan per tonne. Discounts of lead will reverse to premiums with improving trading, which will support SHFE 1705 lead to rise. Third, as the SMM/LME lead price ratio has declined to 7.25, lead eaport window is likely to open. LME canceled warrants are high at present and inventory drops continually, a sign of tight supply in overseas market. Domestic lead smelters are expected to export lead in the near term, easing oversupply in China’s market. Fourth, social inventory is at low. Fifth, environmental protection inspections will keep affecting production at lead smelters.

However, SHFE 1705 lead will face downward pressure for the foreseeable future with negative technical indicators. Moreover, inventories at battery producers stay high in April due to off-season, leading to low operating rate.

To sum up, SMM attributes negative fundamentals to the sharp decline in SHFE 1705 lead price. In mid to late April, lead oversupply will ease in China’s market and supply and demand will be both sluggish. Besides, no more negative factors will be issued in a short term. SMM foresees that SHFE 1705 lead will not keep diving and find support at 16,000 yuan per tonne.

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