LME lead stocks totaled 75,525 tonnes on Friday, up from 66,200 tonnes at the end of December 2019, while modest two-way stock flows continue. Currently, 21.7% of stock is booked for removal, up from 4% on May 5, following a recent increase in cancelations.
Shanghai Futures Exchange lead stocks totaled 9,052 tonnes on June 5, up from a multi-month low of 6,444 tonnes on May 8. We expect stocks to recover gradually amid improving scrap supplies and the restart of mine operations in Latin America.
Recent data reflects the gradual recovery in the global automotive sector. The China Association of Automobile Manufacturers (CAAM) estimates vehicle sales increased by 11% year on year in May, reflecting pent-up demand caused by the Covid-19 lockdown. In the United States, light vehicle sales ran at an annualized pace of 12.2 million units in May, up from 8.6 million units in April, but they remain significantly down on year-earlier levels.
Consultancy LMC Automotive forecasts global light vehicle sales to contract by more than 20% in 2020 overall to around 71 million vehicles.
The International Lead & Zinc Study Group (ILZSG) pegged the refined lead market in a modest 19,000-tonne surplus for the first quarter of 2020. But while downstream demand is reviving, we believe it will be outpaced by the recovery in metal production amid improving raw materials availability, leading the market to record a significant surplus in 2020.
While mine operations in Peru, Bolivia and Mexico have resumed and are ramping up production, lockdown restriction have had a significant impact on production; Peru's national statistics agency INEI estimates lead mine production declined by 84.1% year on year in April.
Shutdowns across all automotive markets have also hit battery manufacturers, forcing several into bankruptcy.
While lead is correcting after running into overhead resistance provided lead remains above Fridays low of $1,733 per tonne, we would view today's action as a correction and view last week's positive break as intact. We maintain our initial upside target as $1,804 per tonne, which marks the 50% Fibo of the January-March down-leg.