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Lead fundamentals remain weak despite unexpected production cuts
Jun 25,2019 17:36CST
smm insight
Yuguang Gold & Lead on Jun 25 shut a production line at a lead smelter for a 30-day maintenance

SHANGHAI, Jun 25 (SMM) – Shanghai lead prices are expected to remain weak in July as the unexpected production cut is unlikely to turn overall fundamentals into positive.

The most active August lead contract on the Shanghai Futures Exchange closed 1.25% higher at 16,235 yuan/mt at Tuesday’s closing bell, holding onto overnight gains that were bolstered by the news that top lead maker Henan Yuguang Gold & Lead on Tuesday shut down one production line at a lead smelter in Jiyuan for a 30-day maintenance that will affect some 10,000 mt of output.

This, together with maintenance at Henan Minshan, is expected to lower output by 18,000-20,000 mt in July, which is unlikely to offset the production recovery from maintenance.

A slew of primary lead smelters will resume production in the middle or at the end of June, or at the start of July, which is estimated to grow production by 25,000-30,000 mt.

Lead supply will receive another boost from major secondary lead smelter Anhui Huabo after it resumes from maintenance at the start of July.

The smelter plans to double the output of its phase-two production lines into 1,200 mt/day, within 10 days after reopening. This is expected to grow output by nearly 10,000 mt for the month.

Lead bullion production in Henan faces a production curb by 30% as local environmental authorities stepped up smog controls. This is expected to have limited impact on the production of refined lead.

For the month of July, lead supply is estimated to expand by 15,000-20,000 mt.

Sluggish end-market consumption bolstered inventories across lead-acid battery distributors to multi-month highs, and kept them cautious about procurement despite continued sales promotion by producers. Inventories of finished goods at lead-acid battery producers failed to go down, and drove producers to scale back operations.

With lower supplies on smelter maintenance in June, traded prices of primary lead maintained a discount against SMM 1# lead, and the discount of secondary lead against primary materials widened to 150 yuan/mt, which reflected poor consumption.

Weakness in consumption is expected to continue in July.

Market commentary

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