SMM News: according to foreign news on June 13, Belgium-based metals and mining company Nyrstar's Australian Pirie Port lead smelter accidentally shut down to the London Metal Exchange (LME) lead market injected rare excitement.
Spurred by the shutdown of the lead plant, investors repaid their short positions, with LME three-month lead prices soaring to a one-month high of $1918.50 a tonne on June 6.
This fluctuation is relatively mild compared with the response to the time spread of LME lead contracts. Lead time spreads shrank to their narrowest level in two years, suggesting that investors in the lead market are scrambling to adjust their positions.
The Belgian metals mining company said in April that it would be taken over by (Trafigura), its main shareholder and commodities trader, as part of its recapitalisation plan.
Nyrstar will sell its operating group to NewCo, a new subsidiary, and Trafigura will take a stake in NewCo98%.
In a separate statement, Trafigura said it would provide up to $250 million in secured financing to Nyrstar to maintain its operations during the transition period.
The Pirie Port lead smelter, one of the world's largest primary lead smelters, was forced to declare force majeure after an accidental shutdown.
Production at the refinery is expected to resume by the end of this month, Nyrstar said. The Port Pirie lead smelter produced 160000 tons of lead in 2018, down 7 per cent from 2017.
Today, Trafigura, an important trader in the lead market, can only count on the refinery to resume production as scheduled, as the unexpected shutdown at the refinery exposed a potential shortage of supply in the market, although that tension has been overshadowed by recent price weakness.
Narrowing of time price difference
After hitting an early year high of $2179.50 a tonne in February, LME lead prices fell broadly and hit a low of $1773.50 a tonne in the middle of last month, but there was little upward momentum before the news of the Pirie Port lead smelter shutdown.
Against a backdrop of lingering macroeconomic concerns, time spreads for all LME base metals are under pressure, but lead time spreads are the weakest. Much of this is due to its "sister metal" zinc. Usually if the fund sells lead, it also buys zinc at the same time.
As a result, lead prices are under heavy pressure, which helps explain why the market reaction remained relatively moderate after the closure of the Port Pirie lead smelter.
The real impact of the smelter's temporary shutdown is in the time spread, which has fluctuated sharply since June 5 and has been volatile since then.
The benchmark spot / three-month lead spread closed at $10.50 a tonne a week earlier, but turned to $39.00 a tonne on June 5. By the close of trading on Tuesday, the rise had expanded further to $42.50 a tonne, suggesting that the tight supply situation was the worst since the first quarter of 2017.
Lead will rise tomorrow / the next day (TOM/next) at $19.00 a tonne on June 5, compared with roughly $9.00 a tonne on Tuesday.
The price difference between tomorrow and the next day of the LME system is one of the best indicators of short-term supply shortage in the market.
Estimates released by Marex Spectron, a LME broker, show that speculative lead short positions accounted for 27 per cent of total positions at the end of May, down from 106 per cent as of Monday.
Given the scramble among short sellers to make up their positions, these traders have become absolute bulls because they hold spot positions and inventories that account for about 80 per cent of LME's available inventory.
The market is tighter
LME lead stocks held by a large bulls have fallen to 50-80 per cent of LME stocks, but it is hard to hide the pitiful lack of lead stocks.
LME lead stocks have fallen steadily since the start of the year, and despite occasional inventory injections from LME warehouses, it has been difficult to stop LME lead stocks from falling to a 10-year low of 66525 tons last week.
As lead supplies flow into the Chinese market, the availability of lead stocks in LME warehouses is limited.
China's lead imports have continued to rise since 2017, when it became a net importer of lead.
According to the data, China imported 102000 tons of lead in 2018 and imported 55000 tons in the first four months of this year.
But China's supply of refined lead does not seem to have increased significantly. Lead stocks in the last period were 29491 tons, an increase of 13665 tons from the January level, but remained near historic lows.
Although data released by the International lead and Zinc Research Group show that there is expected to be a glut of lead and zinc this year.
Now the focus of the market is on whether the Port Pirie smelter can resume production as scheduled. The smelter completed routine maintenance work in December last year.
Nyrstar said the shutdown would result in a loss of about 15000 tons of lead production.
If, as the company puts it, "this unplanned shutdown will have a negative impact on Nyrstar output," Asian lead consumers could be affected, as most of the company's customers are based in the region.