SMM

Since mid-November, lead prices have ended their previous volatile trend. Last week, the most-traded SHFE lead 2501 contract broke through the key resistance level of 17,500 yuan/mt and continued to strengthen, testing 17,910 yuan/mt before a slight correction. How are the fundamentals?

According to a survey, since mid-November, environmental protection-driven production restrictions have repeatedly disrupted the supply side, causing tight refined lead supply in certain regions. The demand for temporary restocking due to urgent needs has pushed up lead prices. With the resumption of production at secondary refined lead smelters, the price spread between secondary refined lead and primary lead widened last week (December 2-6). Although there was another smog warning on Friday, the expectation of production cuts at secondary refined lead smelters remains unclear.

Additionally, in an interview with spot traders about the recent rise in lead prices, SMM learned that as year-end approaches, customers within the industry chain are generally more cautious. On one hand, primary lead smelters have raised premiums on existing spot inventory due to the simultaneous rise in raw material prices and continued low TC prices, being reluctant to sell. Some smelters are using the current market trend as leverage to negotiate next year's long-term contract premiums and discounts. However, traders and some secondary refined lead smelters that have resumed production have slightly increased discounts to recover funds due to rising lead prices, profit recovery, and no expectation of a continued rise in lead prices. A trader mentioned to SMM that after the lead price increase, the bargaining range for premiums and discounts in downstream purchases has widened, leading to a slight reduction in warehouse warrant quotes to follow the market. Additionally, the lead price increase exceeded expectations, resulting in slight losses on hedged spot positions.

Although the supply side still has "unfinished stories" in December, overall downstream consumption remains stable, and there has been no significant supply-demand imbalance in the market, providing relatively limited fundamentals support. This week, as the SHFE lead 2412 contract approaches delivery, suppliers are expected to transfer inventory to warehouses, leading to a high expectation of visible inventory accumulation. After the enthusiasm of the bulls subsides, attention should still be paid to the actual operating rate of downstream sectors and the risk of lead prices jumping initially and then pulling back.