SMM Lead Market Daily Review (2015-4-27)

SHANGHAI, Apr. 28 (SMM) – SHFE 1506 lead hit a high of RMB 13,840/mt Monday as China’s Q1 above-scale industrial profits 0.4% was higher than expectation. But later the June delivery lead fell slightly to hover between RMB 13,750-13,800/mt. The most active contract closed the day at RMB 13,755/mt, up RMB 295/mt. Trading volumes totaled 13,520 lots and positions climbed 84 to 16,370. Higher spot lead prices than SHFE 1506 lead contract prices supported the latter a lot.

In spot lead market, goods of Chihong Zn& Ge, Tongguan, and Humon quoted at RMB 13,850-13,880/mt, with premiums of RMB 50-80/mt to SHFE 1506 lead contract. Price offers for Shuangyan (packed in iron) were RMB 10/mt lower than SHFE 1505 lead contract at RMB 13,730/mt. Traders sourced goods actively, leaving few inventories at smelters. Downstream buyers refrained from buying at highs. In Henan, traded prices were RMB 50-130/mt higher than SMM #1 lead price. Hunan and Jiangxi’s smelters were reluctant to move goods. In Guangdong, some goods from Yunnan’s Gejiu sold for RMB 13,600/mt.

SMM survey of 30 industry insiders indicates that 67% of them remain bullish about lead prices this week, expecting LME lead to rise to USD 2,120-2,130/mt and spot lead prices to test RMB 14,000/mt. The weak durable goods orders and initial jobless claims led markets to believe that the Fed may postpone the interest rate hike. Meanwhile, the US dollar index has fallen below the 40-day moving average, meaning the index may extend losses, boding well for base metals.

In China, the recent monetary easing has driven a rally in China’s stock markets, lending support to commodities markets. Besides, the National Development & Reform Commission announced to approve more large engineering projects, which is bound to boost metal demand.

LME lead stocks continued to fall last week, triggering concerns over lead supply. Spot supply in China also remained tight, allowing spot premiums to remain large at RMB 50-100/mt in Shanghai. Most smelters in Henan, Jiangxi, and Hunan are unwilling to sell considering limited inventories. These factors, combined with upbeat technical indicators, are believed to push lead prices higher.

17% of market players are bearish that spot lead prices may fall to RMB 13,500-13,700/mt and LME lead may trade at USD 2,050-2,100/mt. These players hold that an escalation of the Greek debt crisis may impair the euro, in turn driving up the US dollar index.

In China, although the potential default of Tianwei Group shows a sign of turning around, the event reflected weakness in China’s industrial companies. In addition, these market players believe that supply shortage in spot lead market has been overhyped and expect lead supply to increase with some secondary lead smelters reopening.

The remaining 16% see lead prices to remain stable. Spot lead prices have been rising for a month and downstream buyers did not increase purchases recently, so lead prices will lack momentum to grow further.