Concentrated Arrivals of Imported Lead Are Expected to Intensify Polarization in Lead Ingot Supply: Will Lead Prices Face Short-term Pressure? [SMM Analysis]

Market Review

According to a survey, the price spread between the SHFE 2408 and 2409 lead contracts has continued to widen recently, reaching nearly 1,000 yuan. This is mainly due to the polarization in lead ingot supply in the spot market.

On one hand, the lead futures market showed strong domestic performance and weak international performance. Last week, LME lead weakened significantly while the SHFE 2408 lead contract remained firm, pushing the SHFE/LME price ratio to a three-year high, further expanding the profitability of lead imports. In June, crude lead and secondary refined lead imports significantly increased while primary lead imports grew limitedly. This week saw an increase in quotes for imported primary lead. Several traders mentioned the quotations and detailed impurity specifications for thousands of tons of Kazakhstan lead which is about to arrive, broadening downstream procurement channels. In south-west China, Hunan, and Yunnan, some non-delivery brand and secondary refined lead holders began to offer slight discounts for quick sales.

On the other hand, in July, due to maintenance and production cuts at primary lead smelters in Anhui, Henan, and Inner Mongolia, and a decline in long-term orders, the inventories at delivery brand smelters in Henan, Yunnan, Guangdong, and Jiangxi were nearly depleted by the end of July, with some pre-sale quotes emerging. The supply of branded lead remained tight. Since some battery products highly depend on branded lead raw materials, secondary refined lead and imported crude lead could not meet their procurement needs, prompting downstream companies to turn to social warehouses for supplies. The warrant quotes in Jiangsu, Zhejiang, and Shanghai remained firm, and social inventories declined at one point.

Entering this week, the production of primary and secondary lead smelters gradually resumed, leading to a phased increase in lead ingot supply. Additionally, with the lead import window open, the expected arrival of imported refined lead is about to materialize. As downstream companies' procurement options increase, their demand becomes more dispersed, causing social inventories of lead ingots to stop declining and start rising.

Furthermore, the polarization in lead ingot supply—tight supply of delivery brands and increased supply of non-delivery brands—is likely to continue until mid-August. The actual transaction prices in the spot market may face significant upward pressure. Although the SHFE 2408 lead contract remained firm, the most-traded SHFE 2409 lead contract may face short-term pressure. Future attention should be paid to the recovery of secondary refined lead production in August and the actual arrival of imports, which will affect domestic lead ingot supply.