Cautious sentiment, growing supplies to continue to lower lead prices

SHANGHAI, Sep 5 (SMM) – Prices of lead futures failed to continue their strong performances overnight and led losses among base metals as investors left ahead of the deadline for the US-Sino trade conflict. 

US President Donald Trump's proposed tariffs on $200 billion of Chinese goods could take effect as soon as this week when a public comment period concludes.

As the dollar strengthened and the index that measures the currency against a basket of foreign currencies notched a new high in close to three weeks, at 95.73 ,overnight after a survey showed that US factory stood at a high in 14-years in August. This dragged down nonferrous metals across the board.

Investors should also monitor US-Canada trade negotiations this week after the two sides failed to reach an agreement last week.

Growing supplies also weighed on lead prices. Buoyed by previous gains in lead prices, profit margins at secondary smelters widened, which bolstered production enthusiasm across smelters. With growing supplies, secondary smelters rushed to offload cargoes. This expanded the discounts against primary materials. Offers of secondary refined lead on Tuesday were heard at 100-300 yuan/mt, ex-factory, against offers of SMM #1 primary lead.

Imported materials would grow supplies in an open import arbitrage window. Import margins currently stand at 1,000 yuan/mt. SMM research found that some 5,000 mt of seaborne cargoes will arrive in the first 10 days of September.

Despite an expected high season of lead consumption in September, a cautious sentiment is likely to continue to weigh on lead prices and send the SHFE October contract to a previous low of 18,500 yuan/mt before Washington announces its decision on the proposed tariffs.