In March, domestic and overseas lead ingot inventories diverged, and LME lead prices and SHFE lead prices diverged for a period of time, reopening the lead concentrate import window after a lapse of 2 years. In early March, both supply and demand in the lead market increased. The supply of scrap was relatively ample. The improved profits of secondary lead boosted the production enthusiasm of smelters. SHFE lead prices consolidated around 16,000 yuan/mt. In the second half of the month, overseas lead and zinc mines unexpectedly reduced production, but LME lead inventories climbed to an 11-year high. LME lead prices fell from its high and once fell below $2,000/mt. In contrast, SHFE lead prices edged up on the back of maintenance at primary lead smelters. At the end of the month, the most active SHFE lead contract prices surged to 16,985 yuan/mt, and the SHFE 2404 lead contract prices even broke through the 17,000 yuan/mt mark, reaching a high of 17,075 yuan/mt.
From the supply perspective, producers of key delivery primary lead brands are currently undergoing maintenance. Their supply of lead ingots is not large, and the monthly output changes should be insignificant. Secondary lead smelters resumed production after maintenance, and their output continued to increase in March and April. During the off-season, there is a high possibility of accumulation of lead ingots.
On the consumer side, orders from the automobile sector and replacement will both weaken during the traditional off-season from April to May. On the other hand, the government is actively promoting the replacement of old vehicles for new ones in sectors such as electric bicycles and automobiles, and advocating the organisation of promotional activities, which may alleviate the impact of the decline in consumption to a certain extent. Recently, finished product inventories of some lead-acid battery companies have begun to accumulate, and lead consumption may shrink.
The tight supply of domestic and overseas lead concentrate remains unchanged, and the TCs of lead concentrate were lowered again. SMM data showed that TCs for Pb 50% low-Ag lead concentrate were 600-900 yuan/mt with metal content, 50 yuan/mt with metal content lower than in March. TCs of high-Ag lead concentrate were zero to negative figures. As for scrap materials, due to the off-season for lead-acid batteries, the amount of scrapped batteries has decreased, tightening the supply of battery scrap. Rising costs have supported the strengthening of lead prices.
In terms of imports and exports, LME lead prices have rebounded from a low, while SHFE lead prices have been strong, lowering the SHFE/LME lead price ratio. The lead concentrate import window has been closed again, and the export losses of lead ingots are around 1,300 yuan/mt.
Policy conditions are favourable. The State Council issued the Action Plan for Promoting Large-Scale Equipment Updates and Trade-in of Consumer Goods in March. On top of that, seven Chinese departments including the Ministry of Industry and Information Technology jointly issued the Implementation Plan for Promoting Equipment Renewal in the Industrial Field. The Plan proposed to increase financial support for equipment renewal and technological transformation in the industrial sector. The Shanghai Municipal Commission of Commerce has formulated implementation details for the 2024 Shanghai old car “trade-in” subsidy, which will remain effective from January 1, 2024 to December 31, 2024.
In addition, in March, after the new national standard for lead ingots (2023 edition) came into effect, the Shanghai Futures Exchange temporarily continued to use the 2013 edition of the national standard for lead ingot delivery. Currently, the new and old national standards are both effective, and the lead ingots labelled new national standards are ineligible for delivery. The market is still concerned about shortages of deliverable supply.
As such, lead prices may continue to fluctuate rangebound at highs. Currently, overseas lead inventories are at an 11-year high and domestic consumption is expected to be weak. Lead prices may fall after surging. SMM predicts that SHFE lead prices will move between 16,200-16,950 yuan/mt, and spot prices will stand at 16,100-16,700/mt.
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