Supply Cuts and Demand Growth Lift Lead Prices, but Beware of Subsequent Import Shocks [SMM Lead Market Weekly Forecast]

         Next week will bring a relatively dense schedule of macroeconomic data, with the main focus on China's August official manufacturing PMI, the US August ISM manufacturing PMI, the US August ADP employment, the US August unemployment rate, and the US August seasonally adjusted nonfarm payrolls. Recently, the US July PCE price index rose 3.7% YoY, and inflation stickiness remains at a relatively high level. Divisions within the US Fed over the direction of monetary policy have widened further. The market will focus on Fed Chairman Warsh Kevin's first speech at the Jackson Hole Global Central Bank Symposium to gauge his stance on inflation and the subsequent monetary policy path. Market expectations for a September rate hike have recently increased, and the US dollar trend and base metal prices may continue to be affected by Fed policy expectations. Meanwhile, geopolitical risks in the Middle East have cooled marginally. Iran and Oman are advancing negotiations on temporary shipping lanes and safe passage arrangements in the Strait of Hormuz, and market expectations for a recovery in maritime traffic have risen. However, uncertainty remains over the relevant agreement, and further attention is needed on the progress of negotiations and the impact of shipping conditions in the Strait of Hormuz on energy and base metal markets.

LME lead side, the LME will be closed on Monday for the UK Summer Bank Holiday. Recently, risks from the Strait of Hormuz crisis have cooled, and expectations for a recovery in Middle East lead consumption and transportation have risen. At the same time, China's lead ingot import window opened, and lead ingots outside China have shifted into China, partly easing pressure from high lead ingot inventories outside China. LME lead inventories fell by 10kt during the week, and the LME lead Cash-3M contango narrowed to -$35.36/mt. In the short term, bullish factors in markets outside China have increased somewhat, but high inventory pressure persists. LME lead is expected to continue consolidating at highs, with its trading center edging slightly higher. Next week's trading range is $1,895-1,930/mt.

SHFE lead side, concentrated maintenance among primary lead smelters tightened supply in the spot market, becoming a major bullish factor for lead prices. In addition, the lead-acid battery market will enter its traditional peak season in September, and lead consumption expectations are turning positive, which will also provide support for lead prices. At the same time, the lead ingot import window remains open. Most imported lead is constrained by quality and cannot be directly used by lead-acid battery producers, but it can serve as raw material for secondary lead production, helping secondary lead enterprises resume production. In the short term, lead prices are expected to continue consolidating on a strong note. Next week, SHFE lead is expected to trade in a range of 16,000-16,550 yuan/mt. Subsequently, attention should be paid to how imported lead is gradually converted into China's domestic supply. At that point, supply-side pressure will increase, and caution is warranted against the risk of lead prices retreating after a rapid rise.

Spot Lead Price Forecast: 15,900-16,350 yuan/mt. Lead consumption side, the lead-acid battery market is gradually entering its traditional peak season, and downstream enterprises' demand expectations remain steady with an upward bias, providing a solid foundation for lead prices to rise. Supply side, primary lead and secondary lead enterprises are seeing both output increases and reductions. In the short term, the reduction in primary lead supply is relatively pronounced, and spot lead is expected to trade at a small premium (to the SMM #1 lead average price). Secondary lead side, attention should be paid to smelters' production resumption progress. At the same time, as imported lead continues to flow in, market supply has increased somewhat, and the secondary refined lead discount is expected to widen, diverting some consumption away from primary lead.