- Lead prices are pushing higher again and are well placed to take out the September highs.
- Having raced higher in September, three-month prices stalled and fell back to $1,966 per tonne but this was well above the previous dip low and also above the 38.2% Fibo of the May-September rally.
- We expect lead to continue to work higher over the medium term but we predicted pullbacks along the way – as we have seen recently.
- The stochastics are bullish again.
We were expecting some pockets of scale-up producer selling after prices had run into new high ground for the year late in September but the underlying trend looks strong and we like lead’s fundamentals, as we have all year. The fact prices have not held down for long highlights bullish sentiment.
Better PMI data of late and robust US, Chinese and EU vehicle sales also bode well for metal demand.
At face value, the combination of an apparent supply surplus, stable-but-higher LME stocks and a pick-up in available warrants following the rewarranting of metal in recent weeks provides little reason to be bullish in the short term. So prices should probably remain capped on the upside until there are more signs of a deficit emerging. But with the other metals extending gains, we think lead will follow, especially because we expect a deficit to materialise before long. We would get more comfortable if LME stocks started to fall.
The c-3s spread is not particularly strong at a contango of $15.75-14.75 per tonne – this does not suggest short-covering. But Tuesday’s LME COTR showed the money managers’ gross short position dropped 50% last week – how that happened without tightening the spread is intriguing.
Lead’s latest rebound is working higher. A break above the September high at $2,157 per tonne and the May 2015 high at $2,162 per tonne would target the HRL on the monthly chart at $2,307 per tonne.