Inventory declines to support lead prices to consolidate at highs

This week, key macroeconomic data due include the Markit manufacturing and service PMI in January, the actual annualised GDP in the fourth quarter of the US, and the annualised core PCE price index in the US in December. Regarding the prediction of US dollar interest rate cuts, Federal Reserve Voting Committee Raphael Bostic said that inflation is steadily falling back toward the Fed's target level, and the Fed is expected to start cutting interest rates in the third quarter of this year. Muhammad al-Bakhiti, a member of the Houthi armed politburo, said in an interview with Russian media that ships from countries such as Russia and China can safely pass through the Red Sea.

In terms of LME lead prices, LME lead stocks have continued to decline since January, down 23,000 mt from the end of December. The decline in inventory is believed to be driven by the pent-up demand after the Christmas and New Year holidays as well as by maintenance by European lead and zinc smelters, tightening supply. In the short-term fundamental conditions are still favourable for lead prices, but overseas geopolitical conflicts and expectations of postponed US dollar interest rate cut may restrict the room for lead price increases. LME lead prices are expected to run between $2,040-2,120/mt this week.

In terms of domestic SHFE lead prices, the supply reduction of lead ingots and pre-CNY stockpiling lowered lead ingot social inventory and inventories at smelters sharply. Destocking will continue to support the strong lead prices. Starting this week, the impact of the CNY factor on the market will begin to appear. On the supply side - some secondary lead smelters have begun to shut down. On the consumer side - migrant workers returning home caused expectations of production cuts at battery manufacturers. Both supply and demand decreased. The most active SHFE lead contract prices are expected to move at 16,100-16,450 yuan/mt.

Spot prices are expected to move between 16,050-16,350 yuan/mt. In terms of primary lead, smelters have contributed to output after resuming production, and the supply of lead ingots has continued to increase slightly. However, lead ingots were mostly traded in pre-sale due to low inventories at most smelters, and the supply of available cargoes will be limited this week. Spot cargoes will continue to trade with premiums. In terms of secondary lead, the impact of production restrictions in Anhui abated, thus supply will recover significantly. However, as some smelters close for CNY holiday, regional supply differences will widen. Spot cargoes in some areas will trade with premiums. In terms of consumption, downstream companies have been restocking for CNY holidays, leading to brisk trades. As some migrant workers return home this week, battery production is expected to reduce. In addition, pre-CNY stockpiling will be completed soon. As such, downstream purchasing enthusiasm may cool down.