Supply divergence and the implementation of new tax policies may lead to a rebound in lead prices this week

This week, a series of important macroeconomic data will be released, including China's official manufacturing PMI for July, the US ADP employment for July, the US unemployment rate for July, and the US seasonally-adjusted non-farm payrolls for July. Additionally, attention should be paid to the US Fed meeting, which is expected to keep interest rates unchanged.

Regarding LME lead, recent large-scale warehouse deliveries overseas have caused LME lead inventories to surge by 44,475 mt in a single day, with a weekly increase of 38,875 mt. LME lead prices fell in a stepwise manner, recording nine consecutive declines. After the price drop, the LME lead cash-to-three-month contango quickly narrowed to -$33.14/mt as of July 25. Additionally, the import window for Chinese lead ingots remained open, increasing the likelihood of lead ingot transfers to China, which may provide some support for lead prices. LME lead is expected to rebound this week, reaching $2,000-2,100/mt.

Regarding domestic SHFE lead, there is a divergence in domestic lead ingot supply, especially between delivery and non-delivery products. Primary lead delivery brand producers had low inventories, while the SHFE 2408 lead contract had high open interest. Therefore, the market was concerned about insufficient delivery sources in August. Secondary lead producers in regions like Anhui are resuming production. Due to falling lead prices, battery scrap traders offloaded goods, increasing the likelihood of secondary lead producers ramping up production. With the expected port arrivals of imported lead, the spot market supply is expected to increase temporarily. Additionally, the implementation of the Fair Competition Review Regulations in August, which is expected to increase tax costs, may lead to a rebound in lead prices. The most-traded SHFE lead contract is expected to reach 18,400-19,150 yuan/mt.

Spot price forecast: 19,200-19,650 yuan/mt. Supply side, primary lead smelters underwent both maintenance and resumption, leading to little difference in lead ingot supply. However, as inventories were mostly sold out, the delivery brand is expected to maintain a premium, while the non-delivery brand is likely to trade at a discount. For secondary lead, smelters are resuming production. With falling battery scrap prices and the supplement of imported crude lead, shipments from smelters are likely to be offered at a discount. Demand side, downstream companies maintained purchases as needed, with some companies looking to buy at low prices. However, the market adopted a wait-and-see stance overall.