SMM Lead Market Daily Review (2015-6-8)

SHANGHAI, Jun.9 (SMM) – SHFE 1508 lead followed LME lead down last Friday evening session, to end the session down RMB 100/mt at RMB 13,055/mt as shorts entered market.

The August-delivery lead grew to RMB 13,100/mt after opening Monday session. China’s trade balance for May was released with exports slipping 2.5% YoY, better than expected and previous one, but imports felling 17.6% YoY, short of expected and April’s, which failed to impact metals prices a lot. The contract fluctuated between RMB 13,060-13,150/mt and finished the day at RMB 13,110/mt, down RMB 45/mt. Trading volumes totaled 4,436 lots with positions up 504 to 11,754.

In China’s spot market, Nanfang brand was offered a RMB 560-570/mt premium over SHFE 1508 lead at RMB 13,660-13,670/mt with Shuangyan (packed in plastic) at RMB 13,600-13,620/mt and older Honglu brand goods at RMB 13,200-13,300/mt.

Some lead smelters were unwilling to sell at lows while wait-and-see posture overshadowed downstream market. Besides, downstream producers kept low operating rate and cheaper secondary lead attracted more buyers.

Branded goods settled at RMB 13,450-13,550/mt in Henan and at RMB 13,300-13,350/mt in Guangdong.

SMM’s survey of 30 industry insiders shows that 57% of them are pessimistic about lead prices this week, partly citing the rebounding dollar boosted by upbeat US hiring and housing data. The delayed payments from Greece will deal a blow to the euro, also boding well for the US dollar.

Technical indicators for LME lead are pointing downwards, and the cash-to-three month contango continue expanding. In this context, LME lead prices are likely to fall with the absence of any major encouraging news.

In China’s spot lead market, supply will grow with smelters resuming operation from maintenance and moving goods actively against financial pressures. Demand, in contrast, will decline, as operating rates at downstream producers remain low. As such, a majority of industry participants expect LME lead to fall to USD 1,850-1,900/mt and spot lead prices in China to slip to RMB 13,300-13,500/mt.

Only 10% of market players are bullish that LME lead prices will rise to USD 1,900-1,950/mt and spot lead prices will grow to RMB 13,500-13,700/mt. These players hold that chances are slim for MSCI to include of China’s shares in its equity benchmarks, which will cause investors to leave stock market. That, combined with China’s tighter regulation of stock trading, will allow funds to shift to commodity markets. In addition, the El Niño Phenomenon will also help buoy metal market.

The remaining 33% of respondents see lead prices to remain stable, arguing that the stable positions versus growing trading volumes in LME lead indicates that strength of shorts and longs was somewhat balanced. Besides, although primary lead supply is on the rise, secondary lead supply will decline in busy farming season, which will help limit any decline in lead prices.