Will Lead Price Walk through ‘Waterloo’ in January in Anticipation of Lead-acid Battery Production Resumption?

SHANGHAI, Feb 9 (SMM) - The most-traded SHFE lead contract price dropped like Waterloo in January as it continued to fall since the last rally on December 28, 2022. As of January 31, the contract closed the day at 15,210 yuan/mt, a monthly decline of up to 4.52%.

In the spot market, the average spot price of SMM #1 lead ingot was also on the downward track. Spot quotations of SMM #1 lead ingot dropped to 15,125 yuan/mt as of January 31, down 600 yuan/mt or 3.82% from December 30, 2022.

On the fundamentals, SMM data showed that China produced 284,600 mt of refined lead in January, down 7.36% from December, and up 3.48% from a year ago. The operating rates of primary lead smelters did not fall significantly in January as most smelters maintained normal production during CNY holiday. As of January 27, the weekly average operating rate of SMM primary lead fell to 50.67%, down 8.05 percentage points from 58.72% recorded on December 30, 2022. The YoY growth of refined lead output in January was due to the continuous commissioning of a large-scale smelter in Henan from the end of 2022 to early 2023.

Compared with primary lead smelters, the weekly operating rates of secondary lead smelters declined significantly. The weekly operating rate once dropped to a low of 31.93% during the survey period. In the first week after the holiday, secondary lead smelters that were off during CNY holiday gradually resumed the production, driving the operating rate back to 33.92%. SMM data showed that China produced 285,900 mt of secondary lead in January, down 22.29% from December, and 17.87% from a year ago. SMM expects that, with the gradual resumption and ramp-up of production by smelters that suspended or reduced the production during the CNY holiday, and as the recycling volume of battery scrap further recovers after the Lantern Festival, the secondary lead production will gradually return to normal.

With regard to downstream consumer, lead-acid battery companies were generally off for holidays in January, and the weekly operating rate dropped 22.4 percentage points alone in the week of January 13-20. Most smelters began to take holidays starting from January 20, and the average operating rate dropped from 50.47% to 12.87%.

In terms of inventory, SMM lead ingot inventories across Shanghai, Guangdong, Zhejiang, Jiangsu and Tianjin totalled 58,900 mt as of January 30, up 20,700 mt or 54.19% from the low recorded on December 30, 2022. However, the lead ingot inventory began to drop after lead-acid battery companies resumed the production post CNY holiday. As of February 6, the lead ingot inventory across China’s five major trading markets fell to 51,400 mt.

On the whole, the lead ingot market was weak in terms of both supply and demand due to the CNY holiday. However, compared with the supply side, the CNY holiday has a greater impact on downstream consumers, naming lead-acid battery companies. Against the backdrop of weakening consumption, the social inventory of lead ingots continued to rise, suppressing lead prices.

Looking forward to February, after the Lantern Festival, the upstream and downstream enterprises in the lead industry chain will basically resume work. At present, the lead-acid battery enterprises have basically resumed the production. With the recovery of orders, the operating rates of some medium and large-sized enterprises have returned to 70-80%. The recovery of lead consumption may provide a certain support for lead prices. With the resumption of production of secondary lead smelters and the launch of new capacity of primary lead, the lead market posts strength in terms of both supply and demand.

In terms of export, the SHFE/LME price ratio dropped after CNY holiday, the export window for lead ingots was closed. At present, the delivery of SHFE 2302 is imminent in China, and the sources to be delivered will arrive at the warehouses, and the lead ingot social inventory is still expected to accumulate in the future. Under the mixture of bullish and bearish factors, SMM predicts that short-term lead prices may consolidate at a low level.