Equity markets made a mixed start on Friday after authorities tightened oversight on online financial service platforms while the latest manufacturing data missed consensus expectations.
LME warehouse lead stocks totaled 111,200 tonnes on April 27, down from a recent peak of 124,950 tonnes on March 15, following a spate of inflows. After fresh cancellations recently, 17.4% of stock is now booked for removal.
Shanghai Futures Exchange lead stocks totaled 61,044 tonnes on April 30 compared with a recent low of 36,994 tonnes. Growing seasonal scrap supplies will allow secondary smelters to raise their capacity utilization rates.
In the physical market, lead premiums in the US remain supported at multi-year highs, with rebounding activity in the automotive sector and the closure of a Clarios battery recycling center in Florence tightening availability.
While short-term headwinds remain for the global automotive sector, including the semiconductor supply shortage and lockdown restrictions in Europe, the sector is likely to rebound strongly over 2021. Consultancy LMC Automotive forecasts global light vehicle sales could increase to 86 million vehicles in 2021 from an estimated 77 million vehicles in 2020, although this is still below the 90 million vehicles sold in 2019.
Despite this, the lack of price traction relative to the rest of the base metals reflects concerns surrounding the impact of rising penetration by new-energy vehicles. Boston Consulting projects electrified vehicles will account for more than half of light vehicles sold across the globe by 2026. Despite the shift in vehicle powertrains, new energy vehicles will still require lead-acid batteries to power the vehicle's electrical systems.
Preliminary estimates from the International Lead and Zinc Study Group (ILZSG) put the refined lead market in a 30,000-tonne surplus in January-February 2021, in from a sizeable 172,000-tonne surplus overall in 2020. And while we forecast demand from end-use sectors will rebound through 2021, we also expect higher lead production - we expect the market to record an 80,000-tonne surplus overall in 2021.
Net length among LME investors totaled 3,269 lots on April 23, according to the latest Commitment of Traders Report (COTR). Speculative investor positioning is the least bullish across the base metals based on our z-score analysis but investors could see value at the discounted price level and potentially rebuild some of their bullish exposure again.
Having cleared previous resistance at around $2,090 per tonne, lead has room to extend up towards the February 22 high at $2,185 per tonne. But this positive momentum will continue to rely on bullish sentiment elsewhere in the complex, particularly while the market moves into a period of slower seasonal demand from the automotive sector and while rising scrap supplies allow secondary smelters to raise their capacity utilization rates.