- Lead prices are consolidating between the DTL and two UTLs.
- The stochastics have been negative for a while, highlighting the lack of upward momentum. But he indicator is converging to cross higher – will prices follow?
- We expect the overall upward trend to continue although overhead supply above $2,400 per tonne may well cap the upside unless the fundamentals have tightened.
We expect the fundamentals to tighten but until recently there had been little sign of this happening given movements in LME stocks. But stock outflow has picked up over the past six days, with outflow averaging 2,392 tpd compared with an average of 150 tpd across February and March. So the tide may be turning.
The pick-up in outflow follows the massive 43,625 tonnes of warrant cancellations seen on March 21.
Despite the accelerated outflow and relatively low level of available stocks at 77,800 tonnes, the nearby spreads are not showing signs of tightness.
The LME warrant holding report shows some large position holders. One entity holds 30-39% of the warrants and similarly sized tom and cash positions.
The physical market is showing good demand in the USA although it remains routine in Europe and subdued in India.
Forward selling interest has abated while prices have been trading below recent highs. The 3/15-month spread was recently quoted at $16.50 per tonne contango, having ranged between $5c and $5b in March, while the 3/27-month spread has widened to $9.5 per tonne backwardation from an average of $38b in March.
We generally feel that lead prices are already fairly high but we have said that it would take more evidence of a supply deficit, such as a drawdown in exchange stocks, before we would get more bullish. With LME stocks now falling at a faster pace, we would not be surprised if prices work higher to challenge supply above $2,400 per tonne.