LEAD TODAY: Price upside probably capped

Macro drivers
The January-February data on Chinese industrial production, retail sales and fixed asset investment failed to provide the base metals enough of a catalyst to continue higher. Fixed asset investment and retail sales data were as expected at 6.1% and 8.2% respectively although industrial production fell to 5.3%, missing the expected gain of 5.5%. But global equity indices were mostly supportive and the soft dollar index – it is just above 96.50 – should limit the pullback in base metals prices.

Following the deficit of 98,000 tonnes in 2018, the global refined lead market was undersupplied by 26,000 tonnes in January 2019, which was significantly higher than January 2018 deficit of 3,000 tonnes. This is in line with our previous assessment that the global refined lead market should continue to run a sizable deficit this year simply because of limited mined material for lead smelters to process.

Data is starting to suggest that treatment charges (TCs) are rising modestly. TCs for low-silver lead concentrate rose to $20-30 per tonne in February from $5-15 per tonne in January while high-silver lead TCs jumped to $50-70 per tonne from $24-45 per tonne. But we are unsure if this is sustainable in the long run after global mine output in January of 383,000 tonnes was down sharply from 473,000 tonnes in December.

After three consecutive weeks of buying, there was fresh selling of 1,109 lots as of March 8, according to the LME commitment of traders’ report (COTR). Gross longs took profit from 393 lots while gross shorts added 716 lots. The speculative funds positioning reflects how the LME lead price has fallen from its February high. Still, the metal seems to have found support near the 20 DMA and is already attempting to rebound again. If the metal can produce a fresh 2019 high in the next few weeks, its net long fund position (NLFP) could extend higher too.

But total cancelled warrants have dipped to just 1,700 tonnes after ending February at 32,900 tonnes. With metals more readily available in LME-approved sheds, lending should go smoothly, allowing shorts to roll over their positions more easily. It also indicates that physical demand may not be so strong. This also means that LME lead’s micro-dynamics have turned less bullish while recent inflows have raised LME stocks to 77,850 tonnes.

Related Articles