Very short term (1M):   Flat
Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Flat
R1 2,060 DEc 2018 high
R2 2,135 200 DMA
R3 2,685 2018 high
R4 2,779 Jul 2011 high
S1 1,988 100 DMA
S2 1,886 Oct 31 low
S3 1,876 Oct 11 low
 BB – Bollinger band
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
U/DTL – up/downtrend line
H&S – head-and-shoulder pattern
RSI – relative strength index

  • The LME three-month lead price is trying to erode overhead resistance from the July 2018 DTL (see chart).
  • The daily RSI and the stochastic lines are bullish, indicating that upside momentum should remain intact in the short term. 
  • The 20 DMA has also completed a bullish crossover from the 50 DMA and is working its way towards the same above the 100 DMA.
  • A solid break above the converging wedge-like pattern could give trigger further gains, we feel.       
Macro drivers
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. 

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.