SHFE lead falls over 2% on position building; can spot holding back from selling and low inventory provide support? [SMM Analysis]

SMM, November 3: Lead prices fell sharply today. As of the 15:00 close, the most-traded SHFE lead 2612 contract settled at 15,765 yuan/mt, down 345 yuan/mt or 2.12%, after hitting an intraday low of 15,760 yuan/mt, the lowest level in nearly three months. Futures showed a pattern of falling prices accompanied by rising open interest, with bearish sentiment concentrated in the release. However, the spot market was constrained by low inventory, and smelters held prices firm and held back from selling, resulting in a clear divergence between futures and spot trends.

 1. Demand side: Lead-acid battery consumption weakened, downstream operating rates pulled back
        Signs of the end of the lead-acid battery peak season emerged, with terminal orders weakening. In particular, since October, the suspension of 3C certification for e-bikes has affected complete vehicle supporting orders, leading to production cuts or holidays at some lead-acid battery enterprises. As of October 29, the weekly comprehensive operating rate of lead-acid battery enterprises in SMM's five provinces was 70.93%, down 3.22 percentage points WoW. Downstream enterprises slowed their procurement pace, weakening rigid demand for lead ingots, which became one of the core factors pressuring SHFE lead. However, downstream enterprises have not yet taken extreme measures such as large-scale production cuts or inventory clearing, and demand is in a phase of temporary weakening rather than a cliff-like contraction.

2. Supply side: Imported cargoes continued to flow in, primary lead supply remained constrained
        In late October, imported lead arrived successively and entered China's spot circulation market, supplementing market supply to a certain extent. The latest imported lead quotations against the SHFE lead 2612 contract were at discounts of 350-300 yuan/mt, ex-warehouse at ports. In addition, customs data showed that China's lead ingot imports (including refined lead, crude lead, alloys, etc.) in September were 33,000 mt, and October imports are expected to increase further, with external cargo replenishment bringing potential supply growth.
However, lead ingot inventory remains at a relatively low level. As of November 2, total social inventory of lead ingots across SMM's five regions was only 19,300 mt, at a low level for nearly 10 months. On the supply side, smelters of major primary lead delivery brands remain under maintenance, limiting lead ingot output and market circulation resources to a certain extent. Although imported lead replenishment has increased somewhat, with primary lead supply recovery still insufficient, the lead ingot market does not yet have the conditions for significant inventory buildup in the short term.

3. Spot market: Sharp futures decline drove premiums higher quickly, smelters held back from selling at low prices
        Unlike the continued weakness in futures, the spot market showed some resilience. After the rapid decline in SHFE lead prices, suppliers' quotations remained relatively firm, and spot premiums actually widened. Taking Henan as an example, today (November 3), ex-works spot quotations for primary lead against the SHFE lead 2612 contract were at premiums of 80-100 yuan/mt, a notable increase from premiums of 0-50 yuan/mt yesterday.
Meanwhile, some lead smelters, after the rapid pullback in lead prices, held back from selling at low prices and even temporarily suspended shipments, further restricting the circulation of spot cargo in the spot market. It can be seen that although the arrival of imported lead and weakening downstream consumption have exerted some pressure on lead prices, against the backdrop of low inventory, spot supply has not yet shown significant easing, and the widening spot premiums also reflect suppliers' limited acceptance of current prices.

IV. Market Outlook: Watch for the release of bearish sentiment; low inventory still supports lead prices
        From the performance of the futures market, SHFE lead is currently in a state of declining with increasing open interest, with bearish funds continuing to exert pressure, and short-term market sentiment remains bearish. Going forward, attention should be paid to the release of bearish sentiment and changes in open interest. After the selling pressure on the futures market gradually eases, lead price movements may return to fundamental logic. At that time, low inventory, the progress of production resumptions at lead smelters, and changes in spot premiums will become important bases for judging whether lead prices can stabilize.

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