LME lead stocks totaled 85,200 tonnes on January 25. Outflows are running at a stronger pace pf 1,427 tonnes per day compared with only 175 tpd in December 2018. Currently, 51.8% of stocks are booked for removal, up from 12.9% on December 20 following an increase in cancellations, although there have been some periodic large-scale cancellations, only for the metal to be rewarranted at a later date. Nearby spreads have narrowed, suggesting short-covering has featured recently - the LME’s cash/three-month spread was most recently in a contango of $2.50 per tonne from $16.25 on January 17.
In China, Shanghai Futures Exchange stocks totaled 27,306 tonnes on January 25.
Downstream indicators continue to weaken, particularly slowing momentum in vehicle sales. Global light vehicle sales declined by 6.9% year on year in December 2018, according to LMC Automotive. Global sales totaled 94.8 million vehicles in 2018, down by 0.5% year on year - the first annual contraction since 2009.
In the physical market, lead premiums were unchanged in the week to January 22, with the exception of Taiwan, where they have a slightly upwards bias.
The supply response in zinc has provided little additional lead concentrate supplies, while miners struggle with low grades and environmental inspections in China. South32 reported payable lead production totaled 103,300 tonnes in 2018, down 4% year on year. Similarly Trevali's full-year lead production declined by 6.7% year on year.
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 95,000-tonne deficit recorded in January-November 2018.
The latest commitments of traders data showed net length among LME investment funds declined by 1,448 lots in the week to January 18 - the 2,094-lot rise in fund shorts negated the 646-lot rise in fund longs. Net length currently stands at a negative 2,717 lots, which suggests there is room for lead to rally if the shorts are forced to cover.
Falling stocks and seasonally strong demand continue to provide upside price momentum. In view of the scale of speculative short exposure, lead has further room to rally if they are forced to cover.