SHANGHAI, May 17 (SMM) - Overseas geopolitical issues have not yet been resolved in April, and Russia began to use "rubles" for energy export settlement. The prices of natural gas and other energy sources skyrocketed again in Europe. The domestic pandemic shored up the transportation cost, and the regional supply difference has also pulled up the prices of battery scrap. The dual cost factors of energy and raw materials continue to compete with the traditional off-season, and SHFE lead moved rangebound most of the time in April.

Entering May, the Federal Reserve raised interest rates by 50 basis points as estimated, and the market expected the pace of interest rate hikes to accelerate. Against this background, the US dollar index rose sharply and reached a new high in nearly 20 years. Non-ferrous metals generally fell under pressure. As of May 11, LME lead hit a low of $2,103.5/mt, which dragged on SHFE lead to around 15,000 yuan/mt.

After the bearishness from Fed’s interest rate hike is fully digested in mid and late May, lead prices are likely to return to the fundamentals.

The US Fed raised interest rates by 50 basis points in early May and more hikes are expected this year. At the monetary meeting, officials, regardless of the hawkish or dovish, generally supported the 50-basis-point interest rate hike in the next few meetings. After the US dollar index rose sharply, the RMB depreciated, and the prices of non-ferrous metals have been under pressure.

On the fundamentals, the lead-acid battery market remains in the off-season in May, and sluggish consumption is still the biggest bearish factor for lead prices. On the supply side, the overall supply of primary and secondary lead increased slightly, and lead ingot stock is still likely to accumulate in May. The market needs to pay attention to whether the recovery of terminal consumption can be reflected before the end of May after the pandemic eases to offset the bearish impact from rising supply.

In terms of cost, overseas energy supply was still tight, resulting in high natural gas prices which pulled up the smelting cost of lead smelters. Due to the maintenance of some mines in China and the absence of imports, the lead concentrate supply shortage has intensified in some places. The TCs of lead concentrate in Inner Mongolia and Yunnan dropped again, which stood mainly at 800-1,000 yuan/mt, with a few reported at 500-600 yuan/mt. With the resumption of production across secondary lead smelters, the demand for battery scrap has risen sharply, and their prices remained high. The profit of secondary lead tightened as a result, and cost support factor may play a role at the 15,000 yuan/mt mark.

On the whole, the fundamentals of lead ingots are flat from April to May. Before lead consumption shows signs of improvement, the market needs to focus on cost factors in terms of energy and raw materials. After the bearishness from Fed’s interest rate hike is fully digested in mid and late May, lead prices are likely to return to the fundamentals. It is expected that the spot prices of lead will move between 14,900-15,450 yuan/mt.