New clusters of Covid-19 infections in Beijing and various key states in the United States have raised fresh concerns that reopening the economy remains challenging. We have no doubt that the easing of lockdowns in European countries will cause new clusters of infection to emerge. While this could disrupt economic activity, we suspect it will also change consumer behaviour, which could continue to damage demand.
While Chinese automotive sales rebounded for the second consecutive month in May, the sustainability of the recovery remains questionable. Auto sales across the rest of the globe are likely to shrink, particularly in Europe and the US, where record unemployment and a potentially high rate of insolvencies are likely to prevent a quick recovery.
Passenger car registration numbers from the European Union countries suffered another sharp drop, down by 52.3% in May and by 41.5% over January-May of 2020. The grim number is unsurprising considering the extreme lockdown measures. Still, we suspect the easing in lockdowns to will unlock pent-up demand in the coming months; we expect strong rebounds, similar to the much-improved auto numbers in China.
Still, lead-acid battery demand in the EU could remain challenging because government initiatives are focused on encouraging consumers to switch to environmentally friendlier electric vehicles (EV), which consequently take away market share from the traditional internal combustion engine (ICE).
LME lead's net short fund position increased by 600 lots. Longs unsurprisingly cut their bullish bets, selling 142 lots in the week to June 12, while the LME lead price was heading towards horizontal overhead resistance. But to our surprise, shorts chose to reduce their bearish bets too, with 447 lots removed. We can only speculate that gross shorts are not too keen to maintain their bearish exposure if LME lead price were to break above the horizontal resistance line at $1,775 per tonne.
Progress toward the price target of $1,800 per tonne will take a couple of weeks but given how LME lead price has underperformed the rest of the complex the move to the upside is justifiable.
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.