Fund purchases bolster Shanghai lead

SHANGHAI, Jul 18 (SMM) – Shanghai lead rose to a three-month high on Thursday July 18, propelled by fund purchases and a strong London lead.

The most active September lead contract on the Shanghai Futures Exchange climbed to 16,635 yuan/mt in early morning trade, its highest since April 11, before it pared some gains to finish the trading day 1.2% higher at 16,500 yuan/mt.

A total of 57.19 million yuan of funds entered the contract on the day, with the open interest expanding 9,290 lots to 61,140 lots.

Strong lead on the London Metal Exchange, boosted by record-low inventories across LME warehouses and planned maintenance at Korea Zinc smelter, also fuelled momentum in SHFE lead.

LME lead inventories dropped to 62,300 mt as of July 18, lows in close to five years. Growing expectations that the Federal Reserve will embark on interest rate cuts also offered support to LME lead.

China’s physical market, however, saw larger spot discounts. Higher prices of futures, the inflows of delivered cargoes and cautious downstream buyers prompted spot sellers to deepen discounts.

On Thursday, primary lead smelters offered a discount of 150-100 yuan/mt against SMM 1# assessments, while secondary lead was quoted in a discount of 250-200 yuan/mt.

Meanwhile, prices of lead-acid batteries this week rebounded for the first time in 2019, with SMM assessments showing that the price of 48V/12AH battery for electric bikes gaining 15 yuan/mt from the prior week to an average of 245 yuan/mt as of July 15.

Lead-acid battery producers face less pressure from cash flow issues as the second half of the year just kicked off, and inventory pressure also abated after sales promotion and output curtailments.

A price hike is likely to recover margins across battery producers who has been on the verge of, or even in, losses.