LEAD TODAY: Support found at 50% Fibo

Short term:
Medium term:
Long term:

Resistances:
R1	~~2,347~~ Jul 2017 high
R2	~~2,398~~ 40 DMA
R3	2,463 20 DMA
R4	2,463 200 DMA
R5	2,620 Oct 4 high
R6	2,712 Jan 2011 high

Support:
S1	~~2,576.50~~ 2016 high
S2	~~2,463~~ 200 DMA
S3	~~2,463~~ 20 DMA
S4	2,320 double lows Aug 2017
S5	2,272 Apr 25 lows
S6	2,257 Sep 2017 low

Stochastics:
Drifting lower

Legend:
BB – Bollinger band HSL – horizontal support line SL – support line MACD – moving average convergence divergence DTL – downtrend line UTL – uptrend line H&S – head-and-shoulder pattern RSI – relative strength index

Analysis

Lead is consolidating on Wednesday June 20; the tails on the recent daily candlesticks imply dip-buying ahead of $2,398 per tonne, which marks the 50% Fibo of the May 3-June 7 rally.
The 100 DMA, currently at $2,435 per tonne, is acting as immediate resistance ahead of the 200 DMA at $2,463.
Momentum is drifting lower, although the stochastics are converging in low ground; the RSI at 48 suggests overall momentum remains positive though.
Based on the inset monthly chart, the corrective phase between February and May has formed a small flag, so we have an upside target of $2,875 per tonne based on this.

Macro drivers
London Metal Exchange lead stocks continue to oscillate between 130,000-135,000 tonne amid two-way flows. A mix of fresh cancelations and re-warranting has featured recently - currently 34.4% of stocks are booked for removal. LME warrants are tightly held – one entity accounts for 50-79% of warrant positions. The cash/three-month spread was most recently in a contango of $17.50 per tonne.

Shanghai Futures Exchange stocks total 10,795 tonnes on June 15. Availability could tighten further with maintenance closures and another round of environmental inspections scheduled, although data from China’s National Bureau of Statistics showed refined lead production increased 9.6% in January-May 2018.

The underlying fundamentals have tightened according to the International Lead & Zinc Study Group (ILZSG) – it pegged the refined lead market in a 25,300-tonne deficit in March and a 37,000-tonne deficit in January-March. But total reported stocks declined 26,000 tonnes across the same period, reflecting the impact of previously off-market stocks returning to the open market. The ILZSG now forecasts the global refined lead market to record a deficit of 17,000 tonnes in 2018 compared with the 45,000-tonne shortfall projected in October.

Spot treatment charges (TCs) reflect an increasingly tight lead concentrate market; TCs for high-silver content lead concentrates dropped $10 per tonne to $10-25 per tonne, while fresh environmental inspections and a favorable arbitrage triggered strong demand from Chinese importers.

Global light vehicle sales are up 3.3% year on year in January-May, according to LMC Automotive, which remains supportive for lead-acid battery demand.

In the physical market, premiums in India are flat as spot demand was muted despite softer LME prices. Similarly, rates in Europe are flat due to sluggish demand; in the US rising freight costs pose upside risks.

LME Committment of Traders (CoT) data showed speculative net length increased 438 lots in the week to June 8, as short-covering offset further stale long-liquidation.

Conclusion
Support has emerged around $2,400 per tonne, which marks the 50% Fibo of the May rally, as tightening availability in China continues to underpin price sentiment. Two-way stock flows in the LME are acting to cap short-term price sentiment, but we believe the longer-term outlook remains positive.