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

SMM, April 2: Recently, the price center of lead has gradually shifted downward. The most-traded SHFE lead 2505 contract successively broke through the 5-day, 10-day, 20-day, and 40-day daily average lines. 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, leading to widespread declines in overseas non-ferrous metals. Among them, LME lead fell below the $2,000/mt level, hitting a low of $1,984/mt, the lowest in a month.

So, what is the fundamental situation of lead? Will it hold firm at the 17,000 mark, or will it quickly break through?

Since March, primary lead and secondary lead smelters have collectively resumed operations, coupled with the commissioning of new capacity. In March, lead ingot production increased by over 50% MoM. According to SMM, the new capacity of secondary lead smelters in March reached 500,000 mt/year, and an additional 200,000 mt/year of new secondary lead capacity is expected to be commissioned in April.

During the commissioning of new capacity in the secondary lead sector, smelters stockpiled large quantities of raw materials such as scrap in the early stages to prepare for lead ingot production. During this period, scrap battery prices were more likely to rise than fall, and as scrap transitioned from circulating sources to in-plant inventories of smelters, the supply in the circulating market decreased, intensifying competition among other secondary lead enterprises for scrap. This elevated raw material costs, thereby squeezing profits in the secondary lead industry. According to the latest SMM data, as of April 1, the smelting profit of secondary lead had fallen below the breakeven line, and the discounts on shipments from secondary lead enterprises 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 to lead prices.

After the new capacity is put into operation, lead ingot production is expected to increase. SMM estimates that secondary lead production in April will continue to rise, potentially increasing the risk of inventory buildup this month and weighing on lead prices.

From the consumption perspective, April is the traditional consumption off-season for the lead-acid battery market, primarily due to the weakening replacement demand in the e-bike and automotive battery markets. According to SMM, some lead-acid battery producers have reported a decline in new orders. To reduce finished product inventories, producers intend to cut production and lower inventory levels. As of March 28, the weekly operating rate of lead-acid batteries monitored by SMM dropped by 0.22 percentage points to 73.9%. Additionally, with the Qingming Festival approaching, except for companies that do not observe the holiday, other medium and large lead-acid battery producers plan to take holidays ranging from 1 to 7 days, which will lead to a temporary reduction in lead consumption and may exacerbate the risk of subsequent lead ingot inventory buildup.

In addition, due to the significant decline in LME lead, the SHFE/LME lead price ratio has widened, and the lead ingot import window is expected to open. According to the latest data from SMM, assuming a lead import tariff of 3%, the import loss of refined lead is approximately -300 yuan/mt. If the import source country is a zero-tariff agreement country, the refined lead import window has already opened, and 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 shortage of scrap supply, and the cost support effect of secondary lead will simultaneously become invalid, potentially becoming a turning point for the decline in lead prices. Subsequent attention should be closely paid to the actual import situation of lead ingots.

Overall, with the arrival of the off-season for lead consumption, the risk of lead ingot inventory buildup increases, which may lead to a fluctuating downward trend in lead prices. Currently, due to the release of new capacity in secondary lead, the price of scrap batteries has risen 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 effect of secondary lead will become invalid, and the risk of lead price decline will increase.