In May, the first month of the implementation of the Notice Concerning Issues Related to "Reverse Invoicing" by Resource Recycling Enterprises to Natural Persons Selling Scrap Products issued by the State Taxation Administration, battery scrap recycling enterprises adopted a wait-and-see attitude, with some even temporarily halting battery scrap recycling. This led to a short-term reduction in the supply of battery scrap to smelting enterprises, forcing secondary lead enterprises to reduce production. Meanwhile, the tax cost increase brought by "VAT invoices" transactions led to a general rise in scrap prices, and the cost of lead smelting increased synchronously.
Against the backdrop of continuously declining lead concentrate TC, the tightening supply of battery scrap exacerbated the raw material supply conflict, triggering a bullish market sentiment. The most-traded SHFE lead contract reached a high of 19,175 yuan/mt, the highest since July 2018. Meanwhile, LME lead inventory decreased daily from May 1, with a monthly decline of 87,000 mt. Benefiting from the inventory reduction, LME lead reached a high of $2,359/mt, the highest in two years.
Entering June, overseas lead ingot inventory stopped declining and started to increase. LME lead moved downward in early June. As of June 11, LME lead reached a low of $2,154/mt, the lowest since April 23, 2024. SHFE lead maintained a high-level fluctuation for a long period in early June before falling.
From the supply perspective, primary lead production is expected to remain relatively unchanged in May and June, with the main impact on June's supply coming from secondary lead. As secondary lead smelting enterprises complete maintenance, the expected increase in lead ingot supply will intensify the pressure on subsequent lead ingot inventory accumulation. This offsets the bullish factors of production cuts in May and turns into bearish factors. Additionally, the increase in lead ingot production means higher demand for raw materials such as battery scrap. During the traditional off-season for lead-acid batteries, the limited availability of battery scrap and increased competition may further drive up battery scrap prices, potentially raising raw material costs. From a cost perspective, this still supports a rise in lead prices.
Recently, battery scrap prices have gradually increased, and the tax cost increase brought by the "reverse invoicing" policy has narrowed the profit margins of secondary lead smelting enterprises. According to the SMM survey and estimates, as of June 12, the comprehensive profit of large-scale secondary lead enterprises was around 200 yuan/mt, while in May, the profit could reach up to 1,000 yuan/mt. If battery scrap prices rise to the extent that they completely eliminate the profits of secondary lead smelting, it may again affect lead ingot production, which will be bullish factors.
On the consumption side, end-user consumption in the lead-acid battery market in June changed little, with large enterprises maintaining high operating rates. The rise in lead prices continued to transmit to the battery market, and enterprise orders were moderate. Lead consumption in June is expected to remain stable. The only pressure lies in whether dealer inventories will be transmitted to end-users.
In terms of imports and exports, entering June, the logic of overseas lead ingot inventory reduction no longer existed. As of early June, LME lead prices fell by more than $200/mt from the highest period in May. Domestically, lead prices remained at high levels, further expanding the SHFE/LME lead price ratio, temporarily opening the lead ingot import window. The focus will be on the actual arrivals of imported lead ingots, which will become the biggest bearish factor.
Overall, in June, the increase in lead ingot production hinged on raw materials, and the cost increase continues to support a strong fluctuation in lead prices. During the mid-June SHFE lead delivery period, the visible inventory increase brought by deliveries to warehouses may push lead prices downward but will not completely change the strong trend of lead prices. If good conditions for lead ingot imports are realized, the lead price may decline. It is expected that in mid-to-late June, the most-traded SHFE lead contract will move between 18,200-19,000 yuan/mt, and spot lead will move between 18,200-18,800 yuan/mt.
