Lead market shows weaker Chinese fundamentals

SHANGHAI, Feb 2 (SMM) – The dramatic fall in LME inventory was one of the major reasons why the lead contract registered a six-year high overnight as it continued to move higher.

Lead inventory fell to the lowest level in three years at 133,250 mt, according to the latest available data. This was some 7% lower than the levels seen in early January.

In China, however, SMM believes such momentum is unlikely as downstream restocking ahead of Chinese New Year has finished for the most part and logistics difficulties grew more apparent.  

In addition, supply tightness has started to ease in the domestic market as smelters continued production with low treatment charges. Such fees are likely go up with more supply.

Weaker US dollar led investors to focus more on products with better liquidity, and SHFE lead pales compared with LME lead. 

We expect lead prices to remain firm in the first quarter with low inventory and weaker US dollar. However, we are bearish on a longer-term basis as lead-acid batteries would be replaced gradually.

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