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Analysis
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Macro drivers
LME lead stocks totaled 106,475 tonnes on January 9 compared with 104,150 tonnes on December 10, following recent inflows. Further cancellations have followed the large cancellations at the end of December. The proportion of stocks booked for removal has increased to 61.4% from 12.9% on December 20. The LME’s cash/three-month spread was most recently in a contango of $14.20 per tonne.
In China, Shanghai Futures Exchange stocks totaled 16,599 tonnes on January 4, up from a multi-month low of 6,139 tonnes on October 26. Spot treatment charges (TCs) are diverging from those of zinc, with a wide open arbitrage keeping Chinese smelters highly profitable - they lifted their utilization rates following the end of environmental inspections. But growth in refined lead production will remain limited by emission restrictions during the winter-heating period while economic sanctions compound the already tight availability of raw materials.
Light vehicle sales in the United States totaled 17.2 million vehicles in 2018, up slightly from 17.1 million vehicles in 2017, bucking market expectations for a small year-on-year contraction. LMC Automotive forecasts US light vehicle sales to slow to 17 million vehicles in 2019.
In the physical market, premiums for secondary lead ingots in India have moved higher, reflecting the impact of limited Iranian supplies. But despite strong seasonal demand in the US premiums remain unchanged.
The supply response in zinc has provided little additional lead concentrate supplies while miners struggle with low grades and environmental inspections in China. Global mine production declined by 2.9% year on year in January-October 2018, according to International Lead & Zinc Study Group (ILZSG) estimates.
The fundamentals in the refined lead market are set to remain supportive in 2018-2019, according to a forecast by the ILZSG, which expects the market to record a further 17,000-tonne deficit in 2019, adding to the 94,000-tonne deficit recorded in January-October 2018.
The latest commitments of traders (COT) data showed net length among LME investment funds increased by 3,246 lots in the week to December 28, reflecting the rally in the three-month price to $2,060 per tonne - the 1,345-lot increase in fund longs was bolstered by the 1,901-lot cut in open shorts.
Conclusion
Prices have made modest gains - seasonally strong demand continues to support a favorable fundamental backdrop. Lead is testing the 100 DMA, clearance of which would open the way to retest the December 28 high at $2,060 per tonne, while there is room for strong gains resulting from positive developments in the current trade negotiations between China and the US.
LME lead stocks totaled 106,475 tonnes on January 9 compared with 104,150 tonnes on December 10, following recent inflows. Further cancellations have followed the large cancellations at the end of December. The proportion of stocks booked for removal has increased to 61.4% from 12.9% on December 20. The LME’s cash/three-month spread was most recently in a contango of $14.20 per tonne.
In China, Shanghai Futures Exchange stocks totaled 16,599 tonnes on January 4, up from a multi-month low of 6,139 tonnes on October 26. Spot treatment charges (TCs) are diverging from those of zinc, with a wide open arbitrage keeping Chinese smelters highly profitable - they lifted their utilization rates following the end of environmental inspections. But growth in refined lead production will remain limited by emission restrictions during the winter-heating period while economic sanctions compound the already tight availability of raw materials.
Light vehicle sales in the United States totaled 17.2 million vehicles in 2018, up slightly from 17.1 million vehicles in 2017, bucking market expectations for a small year-on-year contraction. LMC Automotive forecasts US light vehicle sales to slow to 17 million vehicles in 2019.
In the physical market, premiums for secondary lead ingots in India have moved higher, reflecting the impact of limited Iranian supplies. But despite strong seasonal demand in the US premiums remain unchanged.
The supply response in zinc has provided little additional lead concentrate supplies while miners struggle with low grades and environmental inspections in China. Global mine production declined by 2.9% year on year in January-October 2018, according to International Lead & Zinc Study Group (ILZSG) estimates.
The fundamentals in the refined lead market are set to remain supportive in 2018-2019, according to a forecast by the ILZSG, which expects the market to record a further 17,000-tonne deficit in 2019, adding to the 94,000-tonne deficit recorded in January-October 2018.
The latest commitments of traders (COT) data showed net length among LME investment funds increased by 3,246 lots in the week to December 28, reflecting the rally in the three-month price to $2,060 per tonne - the 1,345-lot increase in fund longs was bolstered by the 1,901-lot cut in open shorts.
Conclusion
Prices have made modest gains - seasonally strong demand continues to support a favorable fundamental backdrop. Lead is testing the 100 DMA, clearance of which would open the way to retest the December 28 high at $2,060 per tonne, while there is room for strong gains resulting from positive developments in the current trade negotiations between China and the US.
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.