SMM lead price review and forecast

LME lead prices rose in April and reached a high of $2,245/mt near the end of the month, a monthly increase of 7.83%. In China, due to the transition for the new national delivery standards for lead ingots, the market was concerned about insufficient supply for delivery. The "reverse invoicing" policy for battery scrap was announced in mid-to-late April, and the shortage of scrap supply has led to an unexpected reduction in production at secondary lead companies. Lead prices have risen despite the off-season. By the end of the month, the SHFE 2406 lead contract reached a high of 17,475 yuan/mt, the highest since March 5, 2019, with a monthly increase of 4.02%.

In May, raw material tightness and a capital frenzy sent lead prices rising strongly in early May, with the most active SHFE 2406 contract reaching a high of 18,205 yuan/mt, setting a new high since July 3, 2018.

From the supply perspective, if the production of secondary lead is reduced as scheduled, the trend of domestic lead ingot accumulation will be changed. As profits of secondary lead improve with lead price gains, smelters have increased prices to purchase scrap materials. In this scenario, the actual decline in output in May may be lower than expected.

The supply of lead concentrate at home and abroad remains tight. As the prices of gold and silver are at a relatively high level in history, smelters have increased purchases of lead concentrate with high content of valuable metals. Meanwhile, TCs of domestic lead concentrate hit a record low. SMM data showed that TCs for Pb 50% low-Ag lead concentrate were 600-800 yuan/mt with metal content, 50 yuan/mt with metal content lower than in April. TCs of high-Ag lead concentrate were zero to negative figures, reaching a low of -700 yuan/mt with metal content. The lead concentrate supply will restrict lead ingot output.

In terms of scrap materials, the amount of scrapped batteries is at a relatively low level during the off-season for lead-acid battery. Meanwhile, on April 24, 2024, the State Administration of Taxation issued the Announcement on Matters Related to “Reverse Invoicing" by Resource Recycling Enterprises to Natural Person Sellers of Scrapped Products, which is effective from April 29, 2024. Immediately following the implementation, battery scrap recycling companies stood on the sidelines, and some even temporarily suspended battery scrap recycling, resulting in a reduction in battery recycling volume; the higher tax costs brought about by trades with invoices raised most battery prices. Tightening raw material supply and rising costs will keep lead prices strong.

On the consumer side, lead demand was depressed due to the traditional off-season for lead-acid battery in May. On the other hand, rising lead prices from April to May increased the production cost of batteries. Currently, lead-acid battery companies have begun to raise battery prices, boosting purchases by dealers.

In terms of imports and exports, the import window of lead-related products are about to open, and that of lead concentrate (low-silver lead ore) has reopened. If the import of lead ingots occurs, that will be the biggest negative factor for lead price.

If the import window for lead ingots reopens, the tightness of domestic raw materials and ingots will be quickly reversed. SMM predicts that in the second half of May, the most active SHFE lead contract prices will move between 17,550-18,550 yuan/mt, and the spot prices will stand at 17,200-18,000/mt.