Accumulating Lead Inventory to Put Lead Prices at Downside Risks

SHANGHAI, Feb 13 (SMM) - A draft of important macro data are due for release this week, including unadjusted US CPI in January, US retail sales and PPI in January, etc., which are expected to show mixed results. Last week, the US dollar index kept rising, buoyed by US Fed officials’ hawkish remarks regarding interest rate hikes. Meanwhile, the two-year and 10-year US Treasury yield curves pointed to the biggest inversion in four decades, signalling economic recession in the next year or so.

LME lead inventory accumulated for the first time in a month, also leaving lead prices hovering at lows. LME cash-to-three-month lead contango flipped into a backwardation structure, shoring up LME lead prices at one point. However, a firm US dollar coupled with cost collapse arising from lower energy prices may weigh on LME lead this week. LME lead is expected to run between $2,045-2,155/mt.

Lead ingot supply and demand both recovered after the Lantern Festival. Inventory backlogs from the Chinese New Year (CNY) holiday will continue to put downward pressure on SHFE lead prices. Smelters will ship their cargoes to deliverable warehouses before the delivery of SHFE 2302 lead contract on February 15, which will drive the social inventories to climb further. A small number of secondary lead smelters plan to undertake maintenance in response to meagre profits, which could ease the oversupply pressure to a certain extent. A potential decline in lead-acid battery scrap prices will diminish the cost support to lead prices. It is expected that lead prices will continue to fluctuate weakly this week, and the most-traded SHFE lead contract may move between 15,000-15,350 yuan/mt.

Spot lead prices are expected to trade between 15,000-15,250 yuan/mt. With fading impact from the holiday factor, the production of upstream and downstream enterprises in the lead industry chain will gradually stabilise following recovery in the previous week. At the beginning of this week, there may be only a limited amount of deliverable brand lead ingots available in the spot market, and spot discounts are likely to shrink. For secondary lead, thin profits will discourage secondary lead smelters from selling at lower prices.