Lead Prices Rebounded in the Short Term amid the Cost Support and the Decline in Supply

SHANGHAI, June 28 - Futures: LME lead opened at $1,940.5/mt rose by 2.45% to $1,987/mt overnight after hitting the lowest point at 1,936.5/mt and rising to the highest point at $2,009.5/mt. The open interest increased by 21 lots to 91,384 lots from the previous trading day.

The most-active SHFE 2208 lead contract opened at 15,195 yuan/mt last night, hitting the lowest point at 15,130 yuan/mt, and closed at 15,200 yuan/mt, an increase of 1.23%. The open interest decreased by 3,608 lots to 47,843 lots from the previous trading day.

Spot fundamentals: Chihong lead in Shanghai market quoted at 15,040-15,060 yuan/mt, in discounts of 50-30 yuan/mt over over the SHFE 2207 lead contract. Henan JINLI GOLD and LEAD Group, Henan JINLI GOLD and LEAD Group, Jiangxi Copper Group and Anhui Tongguan Copper Foil Group in Zhejiang market quoted at 15,050-15,070 yuan/mt, in discounts of 40-20 yuan/mt over SHFE 2207 lead contract. Lead futures rose strongly amid the decline in supply and the secondary refined lead was quoted in discounts of 150-100 yuan/mt. The downstream mainly purchased in long-term orders amid the wait-and-see sentiment.

In terms of inventory, as of June 27, the social inventory of lead ingots across Shanghai, Guangdong, Zhejiang, Jiangsu and Tianjin was 81,800 mt, down 3,100 mt from last Friday (June 24) and 12,500 mt from last Monday (June 20). According to the survey, the supply of lead concentrate was tight, and the TCs fell again. The operating rates of primary lead smelters in Hunan, Yunnan and other regions continued to tighten. At the same time, the output of secondary lead in Anhi, the major producing area, reduced. In this case, the regional difference of primary lead supply was huge, prompting downstream enterprises to digest social inventories amid the rigid demand, hence the social inventory of lead ingots continued to decline. At the same time, the maintenance of smelters in Anhui is about to end in July. In addition, the cargo holders are more willing to deliver amid the current basis between spot and futures. SMM will pay further attention to the change of social inventories.

Lead price forecast: On macro side, the US dollar index declined by 0.17% overnight for two consecutive trading days. The monthly rate of durable goods orders in the United States in May and the monthly rate of the existing home contracted sales index in May were better than expected, which brought support to the US dollar index. However, poor data such as the Dallas Fed business activity index and new orders index in June suppressed the US dollar index. In addition, the decline of inflation expectations made the market reassess the expectation of aggressive rate hikes by the US Fed. In terms of fundamentals, the SMM1# lead price stopped falling and rebounded yesterday. The discounts expanded slightly. However, due to the large regional supply differences in the spot market, the cargo holders in Jiangsu and Zhejiang quoted relatively firm. The actual transactions were modest amid the downstream wait-and-see sentiment. SHFE 1# lead is expected to rise by 100--150 yuan/mt today.