LME lead stocks totaled 67,300 tonnes on Monday June 10, down from 79,425 tonnes on March 26. But the nearby spreads remain tight, prompting 1,350 tonnes of stocks to be delivered on warrant as further rewarranting - only 3.5% of stocks are now booked for removal. The LME’s cash/three-month spread was most recently in a backwardation of $11 per tonne. This increases the risk of off-market stocks coming into LME-approved warehouses.
In China, Shanghai Futures Exchange stocks totaled 29,491 tonnes on June 6, down 1,191 tonnes on the week. A fresh round of environmental inspections is limiting smelter utilization rates; the latest trade data also shows that Chinese lead concentrate imports increased by 30% year on year in April and are up 33% on January-April 2018, reflecting strong demand amid favorable treatment charges. But imports could slow given that fresh tariffs on lead concentrate imports from the United States came into effect on June 1.
Recent gains have been fueled by supply concerns after Nyrstar declared force majeure on lead supply contracts from its Port Pirie smelter in Australia. The Peñasquito mine in Mexico also remains suspended due to a blockade by protesters; this is likely to disrupt plans to double production this year.
This could support the underlying fundamentals, which appear less supportive given that the International Lead & Zinc Study Group (ILZSG) now forecasts a 71,000-tonne surplus in 2019 after an 81,000-tonne deficit in 2018, according to its latest revisions. The ILZSG pegged the refined lead market in 7,000-tonne deficit in the first quarter.
Global mine production increased by 6.9% year on year in January-March, according to the ILZSG, bolstered by the 337,600 tonnes per year of lead mine capacity that is due to enter production during 2018 and 2019.
Spot treatment and refining charges (TC/RCs) for low-silver lead concentrates stood at $5-15 per tonne at the end of May, down from $15-35 per tonne in April due to strong demand from Chinese smelters. Fees for high-silver lead concentrates were unchanged at $40-60 per tonne, reflecting limited demand for silver tolling.
In the physical market, secondary lead premiums in India remain on an upward bias - they rose to $90-140 per tonne in the week to June 4, their highest since the start of 2017 - buyers continue to stock up while the LME price remains low. In the US, premiums remain supported by strong demand despite pressure on the broader manufacturing sector.
Vehicle sales continue to slow - global light vehicle sales dropped by 6.6% year on year in January-April, according to LMC Automotive.
China's National Development and Reform Commission (NDRC) has announced plans to counter slowing domestic sales; however, most of the measures focus on new-energy vehicles rather than fossil-fuel vehicles.
Lead-acid batteries face growing headwinds from attempts by authorities to phase out the internal combustion engine and to utilize alternative battery chemistry that has been deemed more environmentally friendly. New standards for e-bikes are expected to drive producers from lead-acid batteries to lithium-ion batteries.
Lead is consolidating recent gains at $1,900 per tonne. While there may be room for further gains in the short term if supply disruptions persist, increasing macroeconomic headwinds continue to cloud the demand outlook and could still weaken the underlying fundamentals.