Lead prices may return to inventory logic this week

This week, China’s “Two Sessions” will end, while the US election is still underway. In terms of macro data, the key data due this week include the US non-seasonally adjusted annualised CPI rate in February, the monthly seasonally adjusted CPI rate in February, the monthly retail sales rate in February, the annualised PPI in February, and the one-year inflation rate expectation in March. During the week, the Federal Reserve's "Beige Book" showed that inflationary pressures are still widespread in the United States. The report is an important reference for the Federal Reserve's monetary policy meeting. The next Federal Reserve monetary policy meeting will be held from March 19 to 20.

In terms of LME lead, LME lead stocks continued to rise during the week and exceeded 190,000 mt, setting a new high since January 27, 2017. The contango of LME cash to the three-month contract stood at $0.45/mt as of March 7. In addition, Federal Reserve Chairman Powell testified in support of interest rate cuts this year, the US dollar index fell sharply, bolstering base metals prices. LME lead prices also stopped falling and rebounded. This week, lead prices will return to fundamentals. LME lead is expected to rise and run at $2,055-2,145/mt.

In March, the supply and demand of lead ingots are expected to increase. The destocking of lead ingots after the recovery of consumption caused lead prices to show an upward trend. Social lead stocks have increased by about 20,000 mt (since after production resumption post Chinese New Year holiday). This week, the delivery of the SHFE front-month contract will lead to further growth in social inventories. At the same time, the profit of secondary lead begins to recover, which may partially offset the impact of maintenance at primary lead smelters. It is expected that the most active SHFE lead contract will fall after rising, standing at 15,950-16,300 yuan/mt.

The spot prices are expected to move between 15,850-16,050 yuan/mt. In terms of primary lead, inventories at smelters are gradually falling, and pressure at sellers has dropped. The smelters reduced output due to maintenance, and the spot lead will trade with a small premium this week. In terms of secondary lead, the price of battery scrap fell slightly, thus profits at smelters have begun to recover. Discounts may widen. In terms of lead consumption, lead-acid battery companies have basically returned to normal production. Companies are purchasing on demand, and transaction volume may be relatively stable.