Decline in SHFE Lead Narrowed, the Pandemic Affecting Downstream Consumption

SHANGHAI, Apr 27(SMM) - Futures: LME lead ended 0.13% lower at $2,344/mt in the overnight trading. The open interest increased by 22 lots to 114,000 lots from the previous day. The most-traded SHFE 2206 lead contract opened at 15,450 yuan/mt and closed at 15,575 yuan/mt in the overnight trading, down 15 yuan/mt or 0.1%. The open interest decreased by 30,045 lots from the previous day to 26,202 lots.

Spot Fundamentals: In Shanghai market, Jiangxi copper and tongguan quoted at flat over SHFE 2205 lead contract. While in Jiangsu and Zhejiang market, jijin, Jiangxi copper and tongguan lead quoted at discounts of 20-0 yuan/mt over SHFE 2205 lead contract. The lead futures continued to drop and holders were less active to quote. Transactions in spot market were dragged down by the pandemic in Shanghai and the tight invoices at the end of the month. With profits in exports, some holders may turn to export goods. The secondary refined lead smelters sold goods on the market demand with a discount of 200-300 yuan/mt on an ex-factory basis (tax included). Downstream enterprises purchased on rigid demand. Under the influence of the pandemic, consumption was weak and the market activity was quieter than the previous day.

Lead price forecast: On the macro level, as the Fed's monetary policy meeting approaches, the US dollar is moving in a strong upward trend. The US dollar hit a new high to 102.38 on April 26 since March 24 in 2020, recording four consecutive gains, putting the LME non-ferrous metals under pressure. On the domestic fundamentals, the supply of secondary lead gradually recovered and refined lead remained stable. The discounts of primary lead and secondary refined lead narrowed after the fall of lead prices. On the consumption side, finished product stocks in lead-acid battery plants were high and consumption in lead grew slowly under the impact of the prevailing pandemics, restricted transportation and limitations in the operations of some car companies. In general, although SHFE lead has moved rangebound at low for two days, the rising costs at smelting and transportation also supported lead prices, which is expected to move rangebound in the short term. The spot lead prices will remain flat.