Expectations of supply tightening are expected to boost lead prices higher, but caution is needed regarding the resumption of production of secondary lead [SMM Morning Lead Meeting Summary]

Futures Market Overview:

Overnight, LME lead opened at $1,985/mt. During the Asian session, LME lead consolidated, oscillating mainly between $1,985-1,990/mt. Entering the European session, the US dollar index declined, coupled with a drop in LME lead inventory, LME lead surged strongly and breached the $2,000/mt psychological level, even reaching $2,016/mt in the late session, a new high in two and a half months. LME lead eventually closed at $1,992.5/mt, up 0.03%.

Overnight, the most-traded SHFE lead 2507 contract opened at 16,995 yuan/mt. Driven by the gains in LME lead, SHFE lead surged to 17,000 yuan/mt shortly after opening but quickly retraced some of its gains. In the latter half of the trading session, SHFE lead held up well, failing to touch the 17,000 yuan/mt level again, and eventually closed at 16,980 yuan/mt, up 0.35%. Its open interest stood at 41,974 lots, decreasing by 83 lots from the previous trading day.

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Macro Overview: In May, China saw "rising consumption, stable production, and soft investment": total retail sales of consumer goods rose 6.4% YoY, marking the highest growth rate since December 2023; the value-added of industrial enterprises above designated size increased 5.8% YoY; urban fixed asset investment rose 3.7% from January to May, while real estate development investment fell 10.7% YoY. Additionally, it was reported that Iran hopes to engage in dialogue with the US and Israel to end hostilities, and is willing to return to the nuclear negotiations table as long as the US does not participate in attacks. US oil prices once fell nearly 5%.

Spot Market Fundamentals:

In yesterday's lead spot market, SHFE lead initially dipped before rebounding. With today being the delivery day for the SHFE lead 2506 contract, there was limited spot market liquidity. Quoted discounts remained largely unchanged from last Friday, with quotes in the Jiangsu, Zhejiang, Shanghai region at discounts of 50-0 yuan/mt against the SHFE lead 2507 contract. Additionally, there were discrepancies in quotes for cargoes self-picked up from primary lead smelters. Smelters refused to budge on prices, offering at premiums (against SMM 1# lead), while traders offered at discounts. Downstream enterprises adopted a wait-and-see attitude, with limited procurement, and some rigid demand transactions were concluded. Furthermore, there were more quotes for secondary refined lead, offered at discounts of 50-0 yuan/mt ex-works against the SMM 1# lead average price, with a few offering at premiums of 50 yuan/mt.

Inventory: As of June 16, LME lead inventory decreased by 1,500 mt to 263,475 mt. The total social inventory of lead ingots across five locations tracked by SMM reached 56,400 mt, increasing by 3,000 mt from June 9 and by 1,600 mt from June 12.

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Today's Lead Price Forecast:

Yesterday was the delivery day for the SHFE lead 2506 contract. The transfer of lead ingot inventory due to delivery has led to a continued increase in social inventory of lead ingots. Based on the open interest of the SHFE lead 2506 contract, the delivery volume of lead ingots in this round is less than 13,000 mt. The existing inventory in social warehouses is sufficient to meet the delivery needs. Both the delivery volume and the volume of transferred lead ingots are lower than those of last month. A significant reason for this is the widespread production cuts and suspensions at secondary lead enterprises in early June. The rigid demand from downstream enterprises shifted to the primary lead market, leading to a decline in the in-plant inventory of primary lead enterprises. Moreover, spot transactions have shifted from trading at a discount (against the SMM 1# lead average price) last month to trading at a premium this month. Most of the supply from primary lead enterprises has directly flowed into the consumer market, which may support a fluctuating trend of lead prices holding up well. Additionally, it is worth noting that primary lead smelters in north and south-west China entered maintenance this week, and supply is expected to tighten further. However, after the rise in lead prices, the losses of secondary lead enterprises have been mitigated, and some secondary lead enterprises intend to resume production. We need to be vigilant about the impact of the expected release of secondary lead supply on lead prices in the future.