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Analysis
Based on provisional data from the International Lead and Zinc Study Group (ILZSG), the global refined lead market was in a deficit of 95,000 tonnes in the first 11 months of 2018. Global mine output continues to decline, it noted - it fell 2% due to lower production from China, Kazakhstan, Peru, South Africa and the United States. Tight domestic availability of refined lead is understandable in China but this has been supplemented by stronger net imports, which rose 18.2% from the same period of 2017. Still, the supply route from neighboring North Korea is restricted by United Nations sanctions while US-China trade tensions have also resulted in a fall in gross imports. Worryingly, though, speculative funds positioning remains firmly bearish. Sentiment deteriorated for the third consecutive weeks. Fresh selling of 1,448 lots in the week to January 18 has bolstered the net short fund position (NSFP) to 2,717 lots; given the current pace of selling, it could continue towards the 2018 nadir of 3,706 lots. Gross shorts were comfortable adding to their bearish exposure - the gross short position climbed by 2,094 lots. There was fresh buying of 646 lots but this failed to change the bearish outlook. Global lead premiums are mostly firm though spot activity in key trading regions are minimal. Falling stocks in Europe could trigger more activity in the next few weeks but most market participants expect a quiet session in South East Asia given the low LME lead price.
Conclusion LME lead is well positioned technically to continue higher if more buying pressure emerges in the very short term. The metal has a robust fundamental backdrop as well as supportive micro-dynamics. An improvement in macroeconomic sentiment is what most market participants seek before they are ready to commit; the January 30-31 meeting between the US and China could provide further clarity. |
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.