SHANGHAI, Oct 11 (SMM) - Looking back at September, domestic lead market remained rangebound as a whole. The most-traded SHFE lead contract surged to the monthly high at 15,195 yuan/mt, and then moved sideways before closing the month at 15,030 yuan/mt, recording a monthly gain of 0.77%.
In the spot market, the average spot price of SMM #1 lead ingot in September was on the upward trend. Spot quote of SMM #1 lead ingot averaged 14,950 yuan/mt as of September 30, up 1.18% in the month.
On the fundamentals, the weekly operating rate of primary lead in September increased significantly compared with in August. At the beginning of the month, companies affected by power restrictions and maintenance earlier resumed the production one after another, shoring up the operating rates. According to SMM survey, the weekly average operating rate of primary lead smelters added 3.69 percentage points from the beginning of the month to 61.33% as of September 30.
The operating rate of secondary lead was completely different from that of primary lead. At the beginning of the month, secondary lead smelters suffered great losses on the back of falling lead prices, resilient quotes offered by battery scrap sellers that led to higher cost, hence they reduced the production voluntarily. Therefore, in the week ending September 9, the weekly operating rate of secondary lead fell 8.91 percentage points. Approaching the end of the month, the overhaul of a large smelter in Anhui and the impact of the pandemic on the transportation and purchase of battery scrap also brought a certain reduction in local secondary lead production. According to SMM survey, the weekly average operating rate of secondary lead smelters fell 16.98 percentage points from the beginning of the month to 31.51% as of September 30.
In terms of inventory, SMM social inventory of lead ingots in the five major markets accumulated first and then fell in September. The social inventory stood at 66,000 mt as of September 30, down 9,000 mt or 12% from the beginning of the month. Around the end of the month, due to the stockpiling before the National Day and the aggravating regional differences in the supply of lead ingots in Anhui, Yunnan and other places, the social inventory of lead ingots dropped significantly.
On the downstream consumer side, the operating rates of lead-acid batteries showed an upward trend in September. September is with the traditional peak season for consumption, and orders from major companies increased steadily in the middle of the month. In particular, the shortage of electric bicycle batteries intensified. Most of the enterprises reached full production. In addition, due to the shortage of some battery specifications in many medium and large enterprises, most of them maintained production during the National Day holiday in order to deliver the orders as soon as possible. According to SMM survey, the weekly average operating rate of lead-acid battery manufacturers added 5.98 percentage points from the beginning of the month to 80.68% as of September 30.
Looking into to October, the supply of lead ingots is expected to tighten regionally as primary lead smelters in Yunnan have received a notice of power rationing, and the transportation of battery scrap in Anhui has been restricted due to the pandemic. There are still uncertainties in smelters’ production situation in October. Meanwhile, lead consumption is in the peak season. After the National Day holiday, the attention shall be paid to whether the shortage of batteries eases, which will play a key role in determining the sustainability of lead consumption in October. In addition, contracting import profits of lead concentrate amid falling SHFE/LME price ratio capped the rise of TCs. On the whole, lead prices are likely to trend upward with the mixture of bearish and bullish factors.
In the spot market, although some primary lead smelters will carry out maintenance in October, some large and medium-sized enterprises will steadily ramp up the production in the fourth quarter considering the annual production and sales guidance. For secondary lead, the newly expanded capacity is about to be put into production. And it is necessary to pay attention to the changes in the profit of secondary lead and the pandemic situation, which may potentially suppress the output. According to the current order book of battery companies, it is expected that lead consumption after the National Day holiday may extend the prosperity, and attention should be paid to downstream restocking post the holiday. If the restocking demand releases, lead prices will rise steadily.
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