SHANGHAI, Jul 3 (SMM) – The price spread between the SHFE 1807 and 1808 lead contracts sharply widened to 1,185 yuan/mt on Tuesday July 3 due to a short squeeze in the 1807 contract, SMM believes. Shorts had to cover their positions and left the market on worries about shortage of spot cargoes for delivery.

As of July 3, open interest in the 1807 contract stood at 22,090 lots, a relatively high level up to delivery. The spread is unlikely to narrow in near term given the current high open interest.

Production at primary lead smelters were affected by the central government’s environmental reviews from the end of May with a 30-50% cut in Jiyuan in Henan province. This lowered lead inventory across China and weighed on the supply.

Lead inventory in Shanghai and Guangdong stood at 5,600 mt and SHFE warrants amounted to 3,154 mt as of Friday June 29.