Metals News
[agency Review] there are differences in the fundamentals of the internal and external disk, and the Shanghai-London ratio of the lead market may continue to narrow.
Source:Wenhua Finance and Economics
The content below was translated by Tencent automatically for reference.

SMM News: recently, Lun lead appeared a wave of continuous rise, and broke through the integer barrier of $2000. On the other hand, the domestic Shanghai lead main 1909 contract shows the trend of concussion operation, under the situation of strong outside and weak inside, the Shanghai-London ratio of lead market continues to shrink to 8.13. Looking forward to the future, due to the general performance of domestic lead demand, the downstream shows a state of low peak season, and the production of primary lead and recycled lead enterprises is uncertain, and the supply has not been significantly reduced, resulting in the accumulation of domestic lead inventory. On the other hand, the stock of LME lead in foreign countries continues to be low, which has a certain support for Lun lead. In addition, expectations for the Fed's rate cut in July are strong. The Bank of Korea has decided to cut interest rates, and expectations of a global rate cut could boost further gains. Therefore, it is expected that the Shanghai-London ratio of lead market is expected to contract further.

Shanghai lead: general demand, increased supply, empty fundamentals

According to SMM research, from July 8 to July 12, SMM lead battery enterprises in Jiangsu, Zhejiang, Jiangxi, Hubei and Hebei provinces have a weekly comprehensive operating rate of 48.13%. According to SMM research, the off-season situation of lead battery market has not changed, coupled with the sharp fluctuations in lead prices this week, most enterprises maintain the state of fixed production by sale. Among them, a small number of electric bicycle battery enterprises reflected that due to the continuous production reduction in June, the recent battery inventory pressure decreased slightly, at the same time, the lead price rose slightly, and the purchasing enthusiasm of dealers in some areas improved slightly, so the production line start-up rate increased slightly. In addition, automotive battery enterprises are due to the main engine factory in advance of the "high temperature vacation", the order situation has no signs of improvement, production lines are less than full load. In addition, we need to continue to pay attention to the inventory digestion of enterprises and dealers.

On the supply side, production of primary lead will resume and the supply of primary lead will increase. The weekly operation rate of SMM primary lead smelter in Henan, Yunnan and Hunan is 55.9%, that of Henan primary smelter is 68.4%, that of Yunnan primary smelter is 42.3%, and that of Hunan primary lead smelter is 43.4%. Although the production of refineries in Henan, Yunnan, Hunan and other areas is stable this week, the maintenance refineries in other areas are in the process of resuming production one after another, and the electrolytic lead production line in the south of Hechi, Guangxi, has been restored this week. In addition, Henan Minshan plans to resume production around July 20, Henan Yuguang plans to resume production around the end of July, and refineries that do not have a maintenance plan for the current period. The period from July to August is the time point for the recovery of electrolytic lead production, and the supply of primary lead will continue to increase.

According to a survey conducted by Shanghai Color Network (SMM), the weekly opening rate of renewable lead smelters in Anhui, Henan and Jiangsu provinces from July 6 to July 12 was 50.8%, down 1.7% from the previous month. Although the operating rate decreased slightly compared with the previous month, the production of recycled lead enterprises in the three provinces remained stable, and the supply of recycled lead did not decrease significantly. The operating rate of Jiangsu reclaimed lead smelter is 50.0%, which is the same as that of last week, and the operating rate of Henan reclaimed lead licensed smelter is 67.8%, a small increase of 2.5% over last week. The main reason is that the weather pollution control in Jiyuan area of Henan Province is basically over. Henan Jinli increased some of the waste battery disposal capacity, and the waste battery disposal capacity this week was 700 tons per day. At the same time, there have been problems in the production line of Jinpeng in Henan Province in the past two days, which is currently in the process of shutdown, affecting part of the weekly output, so the opening rate in Henan this week is only slightly higher; the operating rate of Anhui Regenerative lead smelter is 38.0%, down 7.9% from last week, mainly due to the brief suspension of production in Anhui Huabing Phase II production line in the middle of the week, and the current second phase production line has resumed production, and the output is basically maintained at 1000 tons / day.

In terms of production, there has also been a significant increase in the supply of lead. According to the National Bureau of Statistics, lead production in June 2019 was 475000 tons, an increase of 18.2 percent over the same period last year, and cumulative lead production in the first half of the year was 2.867 million tons, an increase of 16.6 percent over the same period last year.

In terms of inventory, as of 17 July, the stock of futures in the previous period was 31039 tons, compared with 12084 tons in the same period last year, and the level of inventory was on the high side, reflecting the general reality of current consumption.

Lead: inventories remain low, interest rate expectations or main lead continue to rise

Abroad, by contrast, LME lead stocks remain low. As of July 17, LME lead stocks stood at 63075 tons, significantly below 128275 tons, at a low level in the same period in nearly five years. Low stocks will provide some support for lead. In addition, from a technical point of view, after hovering for nearly two months, Lun lead once again broke through the integer barrier of US $2000, and the weekly and monthly technical indicators showed long signals. From a macro point of view, Fed chairman Powell's dovish comments on July 11 triggered expectations for the Fed to cut interest rates. The probability of a rate cut in July has reached 100%, but the extent of the rate cut has not yet been determined. Today, the Bank of Korea has announced a rate cut, the global interest rate cut atmosphere is getting stronger and thicker, Lun lead is also likely to continue to rise under the impetus of funds.

To sum up, due to the differences in the fundamentals of the internal and external disk, and the interest rate cut is expected to contribute to the continued rise of lead in Shanghai, although the strength of lead in Shanghai will also form a certain boost to lead in Shanghai, but due to the poor fundamentals of lead in Shanghai, the increase may not be as good as the lead in Lun. therefore, it is expected that the Shanghai-London ratio of the lead market is expected to shrink further to around 7.7. (source: Guangzhou Futures)

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