Can Lead Prices Hold onto the 17,000 Yuan/mt Mark Amid "Internal and External Challenges"? [SMM Analysis]

SMM April 2 News: Recently, the center of lead prices has gradually shifted downward. The most-traded SHFE lead 2505 contract successively broke through the 5-day, 10-day, 20-day, and 40-day moving averages. As of 15:00 on April 2, SHFE lead closed at 17,360 yuan/mt, down 0.26%. Meanwhile, the US tariff hike incident has intensified, and overseas non-ferrous metals have generally declined, with LME lead falling below the $2,000/mt mark, hitting a low of $1,984/mt, the lowest level in a month. So, what is the fundamental situation of lead? Will it hold the 17,000 yuan/mt level, or will it quickly break through? Since March, primary lead and secondary lead smelters have resumed operations, and new capacity has been put into production. Lead ingot production in March increased by over 50% MoM. According to SMM, the new capacity of secondary lead enterprises in March reached 500,000 mt/year, and an additional 200,000 mt/year of new secondary lead capacity is expected to be put into production in April. During the commissioning of new secondary lead capacity, smelters have stockpiled large amounts of raw materials such as scrap in preparation for lead ingot production. During this period, scrap battery prices are more likely to rise than fall, and as scrap shifts from circulating sources to smelters' in-plant inventories, the supply in the circulating market has decreased, intensifying competition among other secondary lead enterprises for scrap. This has increased raw material costs for lead, thereby squeezing the profits of the secondary lead industry. According to the latest SMM data, as of April 1, secondary lead smelting profits have fallen below the breakeven line, and the discounts on secondary lead shipments have narrowed significantly. Today, secondary refined lead was quoted at premiums of -50~0 yuan/mt ex-factory against the SMM 1# lead average price, which may provide some support for lead prices. After the new capacity is put into production, lead ingot output will increase. According to SMM estimates, secondary lead production in April will continue to rise, potentially increasing the risk of lead ingot inventory buildup this month, dragging down lead prices. From a consumption perspective, April is the traditional off-season for the lead-acid battery market, mainly due to weaker replacement demand for e-bike and automotive batteries. According to SMM, some lead-acid battery companies have reported a decline in new orders, and producers are considering production cuts to reduce finished product inventories. As of March 28, the weekly operating rate of lead-acid batteries fell by 0.22 percentage points to 73.9%. Additionally, with the Qingming Festival approaching, except for companies that do not take holidays, other medium and large lead-acid battery companies plan to take holidays ranging from 1 to 7 days, leading to a phased reduction in lead consumption, which may exacerbate the risk of lead ingot inventory buildup. Click to view SMM spot historical prices. Furthermore, as LME lead has significantly declined, the SHFE/LME lead price ratio has widened, and the lead ingot import window is about to open. According to the latest SMM data, assuming a lead import tariff of 3%, the loss on refined lead imports is around -300 yuan/mt. If the import source country is a zero-tariff agreement country, the refined lead import window has already opened, and since the price of crude lead imports is lower than that of refined lead, the crude lead import window will open earlier than that of refined lead. If the lead import window opens, imported crude lead will to some extent compensate for the scrap supply gap, and the cost support for secondary lead will simultaneously become ineffective, potentially becoming a turning point for lead price declines. Subsequent attention should be paid to the actual import situation of lead ingots. Overall, with the arrival of the lead consumption off-season, the risk of lead ingot inventory buildup is increasing, which may lead to a downward fluctuating trend in lead prices. Currently, due to the release of new secondary lead capacity, scrap battery prices are rising instead of falling, squeezing the profits of the secondary lead industry while also providing cost support for lead. If the conditions for lead ingot imports are met, the cost support for secondary lead will become ineffective, and the risk of lead price declines will increase.