Weak consumption vs. lead cost dynamics: Lead prices are expected to be in the doldrums next week [SMM Weekly Lead Market Forecast]

         Next week coincides with the Dragon Boat Festival, and the SHFE will be closed for one day on June 2. The key macroeconomic data includes China's Caixin Manufacturing PMI for May, the US's ISM Manufacturing PMI for May, and the US's ADP employment figures for May. Additionally, the US Fed will release its Beige Book on economic conditions.

         For LME lead, following a sharp increase of 50,000 mt in LME lead inventory last week, the inventory of lead ingots reversed its trend and declined this week. However, the total inventory remains at a high level not seen in years, dragging down lead prices. Meanwhile, the LME lead cash-3M contango widened, reaching -$23.35/mt as of May 29. Against the backdrop of high inventory, coupled with geopolitical tensions and market concerns about an economic downturn, LME lead is expected to remain in the doldrums next week, trading within the range of $1,925-1,990/mt.

         Domestically, for SHFE lead, weak consumption is currently the biggest bearish factor. In particular, downstream enterprises plan to take holidays ranging from 1 to 5 days during the Dragon Boat Festival, leading to a temporary lack of consumption and potentially increasing the risk of inventory buildup for lead ingots after the holiday. On the raw material side, however, the supply of scrap is tight, making it difficult to reduce scrap battery prices. This has widened the losses for secondary lead producers, prompting some smelters to suspend shipments. As a result, the prices of secondary refined lead and primary lead have inverted. Attention will be paid to whether the cost support for secondary lead remains effective. The most-traded SHFE lead contract is expected to trade within the range of 16,450-16,900 yuan/mt next week.

         Spot price forecast: 16,350-16,650 yuan/mt. During the Dragon Boat Festival next week, many lead-acid battery enterprises have plans to take holidays. Upon returning from the holiday, downstream enterprises' demand for lead ingots is expected to be limited. If lead prices fall further, it may stimulate downstream enterprises to purchase and transfer inventory. For primary lead, production at smelters remains stable, and the availability of spot cargo is ample, with spot prices expected to continue trading at a discount. For secondary lead, the issue of losses is prominent, dampening the enthusiasm of secondary lead enterprises for production and shipments. If scrap battery prices remain high, secondary lead is expected to be sold at a premium, with transactions being more difficult to secure than for primary lead.