[SMM Analysis: Review of Lead Market During Labour Day Holiday and Market Outlook After the Holiday]

SMM May 5 Report: Due to the Labour Day holiday, the Shanghai Futures Exchange suspended night session trading from April 30. Trading in SHFE lead was halted from May 1 to 5, and the domestic spot lead market also entered a trading suspension. The London Metal Exchange (LME) in the overseas market continued trading as usual. During this period, pressured by the strengthening of the US dollar, non-ferrous metals generally declined on April 30. LME lead initially jumped and then pulled back throughout the day, reaching a high of $1,983/mt in the morning and fully erasing its earlier gains by the afternoon. Over the next two days (May 1-2), LME lead gradually fluctuated downward, hitting a low of $1,930/mt. As of May 2, LME lead closed at $1,931.5/mt, down 1.3%.

During the Labour Day holiday, significant macro events and changes in economic data included: (1) Regarding Sino-US tariffs, on May 2, positive signals emerged from Sino-US negotiations, with the Chinese side indicating that the US had repeatedly taken the initiative to convey information, expressing a desire to negotiate with China, and that China was currently assessing this. On May 3, the US officially implemented a 25% tariff on automotive parts, but introduced two new categories of tariff exemptions for automotive parts and officially cancelled the "low-value package tariff exemption" for China.
(2) Regarding expectations for US Fed interest rate cuts, according to the latest data, the US Q1 GDP turned negative on a QoQ basis, while April non-farm payrolls data was better than expected, leading to a downward revision in expectations for US Fed interest rate cuts. The GDP and non-farm payrolls data indicate that the current resilience of the US economy and employment remains strong, with no signs of recession. As a result, market expectations for the number of US Fed interest rate cuts this year have been revised down from four to three, and the timing of the first rate cut has been postponed from June to July.

In terms of inventory changes in lead ingots, the inventory trends of lead ingots diverged domestically and overseas. During the Labour Day holiday, overseas lead ingot inventories continued their downward trend. As of May 2, the total LME lead inventory stood at 264,125 mt, a decrease of 1,475 mt from the level before the holiday. Domestic lead ingot inventories had already shown a trend of inventory buildup on the eve of the Labour Day holiday. As of April 30, the weekly SHFE lead ingot inventory was 46,786 mt, an increase of 1,132 mt from the previous week.

Forecast of Market Changes After the Holiday:
During the Labour Day holiday, the holiday schedules of upstream and downstream enterprises in China's lead industry chain varied, particularly among downstream lead-acid battery enterprises, many of which took holidays ranging from 1-3 days to 4-7 days. This temporary absence of lead consumption led to a significant increase in the pressure of inventory buildup of lead ingots after the holiday, potentially dragging down lead prices. As of May 2, the weekly operating rate of SMM lead-acid battery enterprises plummeted by 18.5 percentage points to 55.06% that week.

In terms of supply, the production of primary lead smelters remained relatively stable. During this period, some lead smelters resumed operations after maintenance, leading to a slight increase of 1.2 percentage points in the weekly operating rate. This not only exerted pressure on the inventory buildup of lead ingots during the Labour Day holiday but also contributed to the overall increase in lead supply in May. In contrast, the number of secondary lead smelters that reduced or halted production increased. According to SMM, the lead-acid battery market was in its traditional consumption off-season from April to May, which was a major factor dragging down lead consumption and also led to a reduction in the amount of scrap batteries. Before the holiday, the supply of scrap batteries in the market was tight, and the raw material inventory levels of secondary lead enterprises were low. Due to the supply-demand mismatch, scrap battery prices were more likely to rise than fall, and secondary lead enterprises generally fell into losses. According to SMM, the loss per mt of secondary lead enterprises reached as high as 500-600 yuan/mt, causing a decline in the production enthusiasm of smelters and leading to a series of production cuts or halts before the holiday. After the Labour Day holiday, if the losses of secondary lead enterprises cannot be improved, it is not ruled out that the scope of production cuts by secondary lead enterprises will further expand, which may become one of the conditions for balancing the consumption gap.

Overall, the risk of inventory buildup of lead ingots after the holiday will lead to a weakening trend in lead prices. However, factors such as tight supply of raw materials like scrap and losses in secondary lead smelting will provide supportive conditions, becoming one of the main factors for lead prices to rebound after hitting a low before the opening of the lead ingot import window.
As the Labour Day holiday draws to a close and the UK bank holiday ends, starting tomorrow (May 6), both the SHFE and LME will resume normal trading. We need to focus on the inventory buildup of lead ingots during the holiday and the production trends of smelters after the holiday.