SHFE Lead Declined: Where to Find Support? [SMM Analysis]

As of 3 PM on July 23, the SHFE 2408 lead contract closed at 19,575 yuan/mt, down 0.84%; the most-traded SHFE 2409 lead contract closed at 19,055 yuan/mt, down 1.19%, with a price spread of 520 yuan/mt. Notably, the weighted total open interest of SHFE lead reached 222,300 lots, with a daily increase of 5,495 lots, marking a historical high since the listing of lead futures.

From a futures trading perspective, increasing open interest during a price decline is a common phenomenon in futures trading and a complex market signal. It may indicate changes in market forces, shifts in investor sentiment, or short-term technical adjustments.

Fundamentally, recently, medium and large secondary lead smelters in Anhui and other regions have gradually resumed production, leading to a phased increase in lead ingot supply. Meanwhile, the SHFE/LME lead price ratio has widened, further boosting lead ingot import profits. As of July 23, lead ingot import profits were nearly 1,500 yuan/mt (calculated with a 3% tariff). These two factors are expected to increase lead ingot supply, potentially reversing the tight domestic lead ingot supply and dragging down lead prices significantly. Yesterday, the most-traded SHFE lead contract briefly fell below 19,000 yuan/mt.

Regarding domestic and overseas lead ingot inventories, according to an SMM survey, as of July 22, China's social inventory of lead ingots was 45,600 mt, a five-month low. In contrast, overseas inventories increased. As of July 23, LME lead inventories reached 253,500 mt, with a daily increase of 44,500 mt, a three-month high. Lead ingots have favorable import conditions.

From the lead price increase logic from May to July this year, it mainly revolved around the shortage of raw material supply, leading to production cuts at the ingot end. In the short term, the resumption of secondary lead smelters and the arrival of imported lead will break the tight domestic lead ingot supply pattern, and SHFE lead may test the support at the 19,000 yuan/mt level. Meanwhile, the domestic scrap supply issue remains unresolved, with battery scrap prices repeatedly hitting historical highs, narrowing secondary lead smelting profits and causing instability in secondary lead production. Cost factors will provide strong support.

Additionally, we need to continue monitoring the subsequent lead ingot import profit situation. If the SHFE/LME price ratio widens again and import profits approach 2,000 yuan/mt, imported lead may fill the gap caused by the reduction in secondary lead (insufficient scrap supply or smelting losses led to production reduction risks at secondary lead enterprises). At that time, the extent to which lead ingot supply is constrained by raw materials will be greatly reduced, and the lead market trading logic will be redefined.