Is the weakening lead price accompanied by a fundamental shift? How is the market performing? [SMM Analysis]

In H1 2024, the supply-demand imbalance of lead concentrate and battery scrap intensified, pushing lead prices to recent highs and quickly opening the lead import window. Approaching the end of July, with the arrival of imported concentrate, crude lead, and refined lead, the supply shortage of H1 eased, leading SHFE lead bulls/arbitrage funds to take profits and exit. In early August, lead prices sharply fell from their highs, hitting cost support. How is the spot market performing amid volatile lead prices and supply-demand changes?

Lead Concentrate and Crude Lead Market

Regarding lead concentrate and imported crude lead, surveys indicate that due to the slow production ramp-up of mines, domestic and imported lead concentrate supply did not significantly change. With expanded import profits, a small amount of mine tender spot cargoes flowed in, but the increase in domestic lead concentrate supply was very limited. Lead concentrate TC and the silver pricing coefficient within it remained difficult to fall. After the SHFE/LME price ratio declined and import profits narrowed, some imported lead concentrate holders slightly raised their TC quotes. Additionally, smelters in regions like Hunan mentioned to SMM that they bought imported crude lead to supplement the lead concentrate supply gap, but only if the imported crude lead contained recoverable valuable metals like tin, antimony, and silver. Imported crude lead with a lead content above 99% and no recoverable impurities would not enter the electrolytic system. Therefore, the raw material constraints for primary lead smelters using lead concentrate or mined crude lead as the main feedstock did not ease.

Battery Scrap Prices to Support Lead Prices Failed, Secondary Refined Lead Supply Climbed

In late July, large smelters in Henan, Anhui, and other regions issued price reduction notices. In addition, with the expanded lead price decline and the expected increase in battery scrap replacement during the peak season, battery scrap traders quickly shifted from hoarding to selling. The previous price support from battery scrap for lead prices failed. In Anhui, a key secondary lead production area, smelters gradually resumed production, and with the addition of imported secondary refined lead, the previous price inversion of secondary refined lead disappeared, and refined lead supply slowly climbed.

Supplementation of Imported Refined Lead Supply

Approaching mid-to-late July, pre-sold imported refined lead arrived at ports. Markets like Shanghai still had many pre-sale quotes for future arrivals of imported lead, and the types of imported lead expanded from initially secondary crude lead to refined lead, even including LME deliverable brand lead ingots. The domestic lead ingot supply gap in July gradually closed, but after the sharp domestic lead price correction and narrowed import profits in early August, the expected arrival of imported lead in mid-to-late August might slightly decline.

Delayed Peak Season for Downstream Consumption

Downstream consumption demand did not rise synchronously with the increase in lead ingot supply. After a price increase during the off-season, lead-acid batteries faced impacts from heavy rainfalls in many regions, safety inspections, and management of electric bicycles. Traditional peak season orders were not as strong as in the same period in previous years. Some battery companies mentioned plans for production reduction or suspension due to high temperatures. By sector, the demand from energy storage batteries used in mobile base stations and data centers was strong with sufficient orders, but the replacement demand from electric bicycle and automotive batteries, which account for a larger share of lead consumption, was relatively weak. After the lead price weakened, lead-acid battery prices did not directly follow the decline. Dealers generally adopted a wait-and-see approach, with poor willingness to stock up.

Looking ahead to August, although the tight supply of lead concentrate did not ease, battery scrap prices had turned downward, and the cost support for lead prices also shifted lower. The topic of tight domestic lead ingot supply came to an end, with bulls exiting the market, leading to a bearish atmosphere. The domestic lead ingot supply gap in July gradually closed, but after the sharp domestic lead price correction and narrowed import profits in early August, the expected arrival of imported lead in mid-to-late August might slightly decline. The traditional peak season for lead consumption in Q3 is still worthy of attention. If the peak season materializes, we could see lead prices stop falling and rebound.