Lead Prices Fall for Four Consecutive Days, Widening Disparities in the Spot Market? [SMM Analysis]

Last week, lead prices ended the bullish trend that began in mid-November, experiencing a brief stabilization at the start of the week before falling for four consecutive days. The most-traded SHFE lead 2401 contract retreated to a low of 17,360 yuan/mt, while SMM #1 lead prices dropped to 17,150 yuan/mt. Disparities in spot market quotations across different regions widened.

According to a survey, differences in the supply of primary lead were significant due to varying maintenance schedules at primary lead smelters and differing levels of reluctance to sell among suppliers in certain regions. After lead prices stagnated early in the week, suppliers in Hunan and Yunnan lowered premiums and sold off inventories due to bearish sentiment. Following the completion of these inventory sales, spot premiums in Hunan and Yunnan rose mid-week, with smelters once again stockpiling in anticipation of price increases. However, downstream enterprises remained cautious, making only minimal purchases to meet immediate needs. Meanwhile, smelters in Henan and Jiangxi had already transferred inventories for delivery or gradually shipped goods under long-term contracts, resulting in limited availability of circulating cargoes. As SHFE lead prices continued to weaken and the spread between futures and spot prices narrowed, traders reduced the discounts on Henan cargoes self-picked up from production sites against SHFE lead contracts or temporarily withheld quotations, awaiting delivery. Nevertheless, downstream buyers were still able to secure small volumes of spot cargoes at discounts to SMM #1 lead prices, leading to significant variations in market transactions.

In the latest spot market updates, some traders mentioned a rebound in the SHFE/LME price ratio and theoretical profitability in crude lead imports early in the week. However, domestic lead prices fluctuated downward, and import profitability remained unstable. As a result, the trade market saw no significant booking of imported crude lead last week, requiring continued monitoring. Regarding long-term contracts, smelters largely concluded their annual contract negotiations last week. Smelters in Hunan, Henan, Guangdong, and Inner Mongolia reported narrowing discounts for 2025 annual contracts by 20-30 yuan/mt. However, some smelters indicated that they had already adjusted the premiums and discounts for 2024 annual contracts to parity, leaving no further room for narrowing in 2025. Additionally, a small- to medium-sized downstream battery enterprise told SMM that it plans to increase the proportion of long-term contracts in 2025 to mitigate the challenges of high-cost purchases during special market conditions, such as large-scale procurement by major players and capital disruptions. For more details, see "2024 Secondary Lead Market Nears Conclusion: Unveiling the Behind-the-Scenes Dynamics of the 2025 Long-Term Contract Signing [SMM Analysis]."

Looking ahead to late December, the recovery of secondary refined lead production profits is expected to drive production increases, marking a key change on the fundamentals side. However, undersupply and rising prices of battery scrap may lead to declines in raw material inventories for secondary refined lead, potentially limiting production growth and providing cost support for lead prices. With bullish sentiment fading last week, lead prices tested cost support levels. Moving forward, attention should focus on the recovery of supply and the performance of year-end consumption orders from downstream sectors.