[SMM analysis] LME lead prices fall, mixed news for SHFE lead prices, attention to the recovery of secondary lead production and consumption

Since January 25, the LME lead inventory has increased rapidly as a whole. As of March 19, the LME lead inventory increased to 199,775 tons, approaching the 200,000 tons mark, refreshing the record since March 2016. That indicates that overseas consumption is weak. Combined with the strong performance of the US dollar index in recent trading days, the price of LME lead prices fell to US$2,074/ton on March 19, a new low since March 7. As of 14:45 on March 20, LME lead prices dropped by 0.43% to US$2,087/ton.

On March 20, the LME lead inventory increased significantly by 67,300 tons to 267,075 tons, setting a new high since March 2013 and a new high in 14 years. This was mainly due to overseas deliveries to warehouses. After the inventory data was released, LME lead prices fell. As of 17:35, LME lead prices fell by 1.29% to US$2,066 per ton.

In terms of SHFE lead prices, its performance was slightly stronger than the overseas market. As of the day's close on March 20, the most active SHFE lead contracts rose by 0.09% to 16,255 yuan/ton.

As of March 20, the spot quotation of SMM 1# lead ingot was temporarily stable at 16050~16200 yuan/mt, with the average price quoted at 16125 yuan/mt.

From the perspective of domestic fundamentals, SMM believes that the lead market showed an increase in supply and demand in early March. However, in mid-to-late March, primary lead companies increased their maintenance, and primary lead production may decline due to reasons such as smelter maintenance and raw material supply. The lead ingot accumulation is limited, and domestic lead prices outperformed overseas lead prices. There is currently no opportunity to export lead ingots.

As for secondary lead, as the previous smelters gradually recover from maintenance, subsequent secondary lead production is expected to increase. In addition, the previous increase in lead prices has turned the secondary lead sector from losses to profits. Better profit levels may promote active production of smelters to make up for the production reduction.

In terms of inventory, the SMM social inventory of lead ingots in the five major markets accumulated to 68,700 mt as of March 18.

Due to the delivery factor, the social inventory of lead ingots increased. The impact of the overhaul of primary lead smelting companies in Henan and other places intensified, leading to a decline in the inventory of lead ingots in social warehouses in some areas. But due to the overhaul of some secondary lead smelters and the recovery of profits of secondary lead, the discount of secondary lead against primary lead expanded, growing purchases by downstream companies. This led to the growth in social inventory of primary lead. SMM predicts that with the subsequent increase in maintenance of primary lead smelters, the supply gap between the north and the south will widen, and the overall social inventory may turn to a downward trend.

In terms of downstream consumption, considering that March to May is the traditional off-season for the lead-acid battery market, battery inventories of some companies have begun to increase. Currently, most downstream companies are determining production based on sales, and a few companies intend to close. It is expected that the follow-up increase in the operating rates of storage battery companies will be limited.

On the whole, the current domestic lead market has both positive and negative factors. Under the combined influence of factors such as the increase in maintenance of primary lead smelters, the recovery of secondary lead supply, and the approach of the traditional off-season for downstream lead consumption, SHFE lead prices should remain rangebound in the short term.