SunSirs: Supply Disruptions Drive Volatile Lead Prices

According to China Nonferrous Metals News, Shanghai lead futures have recently exhibited an overall upward trend amid volatility. This surge stems primarily from environmental policies in Henan and Hebei provinces, which prolonged the circulation cycle of scrap materials and recycled lead. Additionally, the pace of recycled lead production recovery fell short of expectations, pushing smelter inventories to low levels and thereby bolstering lead prices.

For LME lead, after earlier price declines triggered by deteriorating Sino-US trade relations and the US government shutdown, recent improvements in Sino-US relations and better-than-expected US inflation data have eased market pessimism, driving LME lead prices higher.

Beware of Fed Rate Cuts Falling Short of Expectations

With Sino-US trade policies now settled and the impact of the US government shutdown gradually priced in, the macro focus remains on adjustments to expectations for Fed rate cuts. The Fed remains divided on a December rate cut. Given the complementary nature of immigration and domestic employment in the U.S., a significant decline in immigrant inflows would inevitably lead to reduced employment for native-born Americans. However, considering the only modest increase in the current unemployment rate, it remains unclear whether the U.S. labor market will deteriorate further.

Overall, the Fed's future rate cut path may be relatively conservative, and market expectations for its trajectory could be overstated. As Fed rate cut expectations adjust, the U.S. dollar index may strengthen again, exerting downward pressure on base metals. However, the short-term impact on lead prices is expected to be relatively limited.

Limited room for primary lead production growth

Overseas, ramp-up at Endeavor and Tara mines will provide incremental supply, while Cannington mine's upcoming high-grade ore zone extraction will restore output. Overall overseas mine production is expected to increase modestly. Considering the impact of concentrated U.S. mine shipments arriving at ports, China's ore imports may show month-on-month declines but year-on-year growth.

Domestically, some northern mines have scheduled shutdowns within the month. Considering recent resumptions of production in Sichuan, Fujian, and other regions following technical upgrades or maintenance, domestic ore supply is expected to remain largely unchanged month-on-month. Additionally, multiple domestic mines have completed fourth-quarter lead concentrate presales and concluded transactions. However, winter stockpiling by smelters in Henan, Inner Mongolia, and other regions remains ongoing. Combined with the ongoing drawdown of high ore inventories at smelters, the tight ore supply situation is expected to intensify further in the short term.

High byproduct prices are boosting primary lead production margins, supporting smelters to maintain high operating rates. In the short term, while multiple primary lead smelters plan to resume or increase production, the anticipated worsening of tight ore supply suggests actual restart progress may fall short of expectations. Primary lead output is expected to remain largely unchanged from previous levels in the near term.

Increased Environmental Risks for Recycled Lead

As temperatures drop, battery replacement demand is expected to rise further, potentially driving a sequential increase in scrap battery supply. Earlier, import margins for domestic lead ingots widened further, and recent imports of crude lead may increase, supplementing raw materials for recycled lead smelting. This has improved the supply of recycled lead feedstock compared to earlier periods. However, given the severe overcapacity in recycled lead production, even with increased scrap battery supply, it remains difficult to meet smelters' demand. Scrap battery prices are likely to rise rather than fall.

Improved supply of recycled lead raw materials supports increased production. Yet, as raw material prices have not risen in tandem with lead prices, current smelting margins remain at relatively high levels for the year. Given that operating rates at recycled lead smelters are still at historically low levels for this time of year, recycled lead output is expected to have room for growth in the short term. However, it is important to note that with the onset of the heating season in northern China, environmental restrictions on production at northern recycled lead smelters are increasing. Additionally, weather factors may disrupt the circulation of scrap batteries and recycled lead, potentially leading to periodic supply tightness in recycled lead.

Demand Remains Steady

Electric bicycle demand is transitioning from peak to off-season. As temperatures drop, sales may experience seasonal declines. With the mandatory implementation of new national standards in September affecting production lines, electric bicycle manufacturers face production line upgrades. The sales transition period for old-standard bikes is nearing its end. However, dealer product conversion needs continue to support lead-acid battery demand in the electric bicycle sector. In the automotive sector, year-end sales promotions have commenced, but considering the demand-depletion effect, short-term growth in vehicle sales is expected to be limited.

From the battery perspective:

- Production lines for new-standard e-bikes have not yet completed upgrades. With the old-standard sales transition period ending, demand for e-bike batteries remains supported but lacks further growth potential. Automotive battery replacement demand shows signs of recovery as temperatures drop, with short-term growth expected. For exports, the worsening price disparity between domestic and international lead ingots, coupled with the trend of domestic lead-acid battery manufacturers expanding overseas, indicates that lead-acid batteries

As an integrated internet platform providing benchmark prices, on November 19, the benchmark price of lead on SunSirs was 17,181.00 RMB/ton, a decrease of 0.43% compared with the beginning of the month (17,256.00 RMB /ton).

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