What Changes in Spot Lead Market Should be Paid Attention to ahead of CNY after 6-Day Losing Streak of SHFE Lead?

SHANGHAI, Jan 9 (SMM) – Lead prices surged amid downstream restocking before the New Year's Day, with the most active SHFE lead contract hitting 16,200 yuan/mt, the highest level in the fourth quarter. LME lead prices reached $2,300/mt. After the New Year's Day holidays, the "most hawkish" meeting minutes by the Federal Reserve pushed down most base metals prices, including lead.

Both supply and demand in the lead market will be weak before Chinese New Year (CNY) holidays. The export window for lead ingots has remained open recently. Meantime, some lead ingots were transferred to social warehouses before being exported, growing lead ingot inventories slowly. Social inventories of lead ingots in the five markets surveyed by SMM stood at 41,300 mt as of January 6, up over 3,000 mt from December 30.

According to SMM survey, some small and medium-sized enterprises will cut output or halt production this week for CNY holidays. However, most primary lead smelters will maintain normal production during CNY holidays. Secondary refined lead smelters are expected to close during CNY holidays. Consumption would weaken more significantly than supply. Therefore, refined lead inventories are expected to accumulate further ahead of CNY.

The market normally pays attention to the cost support of secondary refined lead when lead prices fall. Sharp declines in spot discounts of secondary refined lead resulting from sellers holding back their cargoes typically point to a halt in lead prices. After lead prices dropped last week, the discounts of secondary refined lead against SMM #1 lead narrowed slightly from 400 yuan/mt to around 250 yuan/mt. Despite high inventories at secondary refined lead smelters, most of them sold under long term contracts. Sell-off with large discounts was not seen after declines in lead prices last week.

For the import of lead concentrate, SMM understood that smelters mainly signed long-term contracts with decided volumes and undetermined prices. Treatment charges (TCs) will be decided on a monthly or quarterly basis. Quotations in the trading market are currently low due to the SHFE/LME lead price ratio. TCs of some lead ore with abundant copper-zinc-silver content under long-term contracts dropped by nearly a half or more from the same period last year. This kept most smelters on the sidelines. According to traders, the total amount of long-term contracts signed for imported lead concentrate may decline in 2023, with some orders being negotiated. Compared with 2022, 30% of imported lead concentrate may face higher costs for domestic lead smelters.

The export window for refined lead has opened since December amid continuously falling SHFE/LME lead price ratio. Last week, the backwardation on LME lead rose to $50/mt, which ensured some profit for lead ingot exports. The trade market was hectic.

Considering the approaching CNY holidays which will impact logistics and transportation, some of the cargoes set to be exported will be stored in social warehouses briefly. The market shall pay attention to the impact of refined lead export on the domestic supply and demand balance.