SHANGHAI, Sep 26 (SMM) – The movement of LME lead during the week-long National Day holiday would be a key factor to determine the direction of SHFE lead in October against the backdrop of turmoil in the macro environment and mixed developments expected on the fundamentals front.
If its LME counterpart falls, SHFE lead is very likely to tread on a downward track, SMM expects. The SHFE contract for November delivery has closed lower for three consecutive trading days as of Wednesday September 26.
In terms of near-term macro news flows to influence lead prices, the dollar may strengthen on a widely expected US interest rate hike by the Federal Reserve. This is set to weigh on base metals. The US Commerce Department would report the nation’s trade balance for August next week and this may stress the market amid months-long US-China trade disputes.
US economic data slated for release during the first week of October include September factory activity, nonfarm payrolls and August factory orders.
In the Chinese physical market, trades were brisk this week despite the weak performance of SHFE lead futures. Downstream consumers’ preholiday stockpiling bolstered the trading activity across the market. Domestic materials were offered in premiums of 250-350 yuan/mt against the SHFE October contract in Shanghai.
SMM believes that recent tumbles in LME lead accounted for the losses in SHFE lead. Investors flowed out of SHFE lead on risk aversion.
On the fundamentals front, supplies of lead concentrate were short in some regions and this is set to cap the gains in treatment charges (TCs) in Guangxi, Yunnan and Hunan. SMM learned that short supplies of concentrate deterred some smelters in Hunan from operating at full capacity.
SMM expects a squeeze given the already tight supply of deliverable cargoes. The supply is likely to further tighten as the upcoming winter may put smelters under production curbs.
The lead-acid battery market would see demand cooling down in October amid a cyclically slow season. Besides, one secondary lead smelters in Anhui plans to commission new production lines next month.
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