SunSirs: Lead Prices Swing Amid Widespread Supply Disruptions

Recently, the price of the main contract of Shanghai lead has generally shown a volatile upward trend. The main reason is that affected by the environmental protection policies in Henan and Hebei regions in the early stage, the circulation cycle of waste materials and recycled lead has increased, and the progress of the resumption of production of recycled lead has fallen short of expectations. The inventory of smelters has been reduced to a low level, thus boosting the lead price.

In terms of lead, after the initial deterioration of Sino-US trade and the price decline caused by the "shutdown" of the US government, recently, with the repair of Sino-US relations and the better-than-expected performance of US inflation data, the market's pessimism has recovered, driving the LME lead price to recover upward.

Beware of the Fed's interest rate cut falling short of expectations

With the trade policy between China and the United States falling into place, and the impact of the US government's "shutdown" being gradually priced in, the macro main line still lies in the adjustment of the Fed's interest rate cut expectations. The current market has priced in a 25-basis-point interest rate cut by the Fed in December and two interest rate cuts in 2026, totaling 50 basis points. From Powell's recent statements, it can be seen that the Fed still has differences over a December interest rate cut. Since the inflow of immigrants and the employment of local US residents have a complementary structure, a significant decrease in the inflow of immigrants will inevitably lead to a decrease in the employment of local US residents. Combined with the current fact that the unemployment rate has only increased slightly, it is not yet clear whether the US labor market will further deteriorate. In addition, although Powell previously stated that the tariff policy has a one-time impact on inflation, in this speech, Powell emphasized the deterioration of the PCE data, indicating that the risk of intensified inflation still exists.

Overall, the subsequent path of interest rate cuts by the Fed is likely to be more conservative, and the market's expectations for the Fed's interest rate cuts may be overestimated. It is expected that as the Fed's interest rate cut expectations adjust, the US dollar index may strengthen again, exerting pressure on the non-ferrous metal sector, but in the short term, the impact on lead prices is relatively limited.

The original lead production space is limited.

Overseas, Endeavor, and Tara mine production can still provide some incremental supply, and the Cannington mine is about to exploit high-grade ore zones, which will restore some production. It is expected that the overall overseas mine production will maintain an increase, but the increment will be small. Taking into account the impact of the concentrated shipment of American mines to ports, the import of domestic ore may show a trend of环-by环 decrease and year-on-year increase.

Domestically, some northern mines have planned to shut down for the month, and considering that some technological renovations in Sichuan and Fujian and other places have ended or that production has resumed after maintenance, it is expected that domestic ore supply will remain basically flat compared to the previous month. In addition, several domestic mines have completed the pre-sale of lead concentrate for the fourth quarter and ended the transaction, but the winter reserve of smelters in Henan, Inner Mongolia and other places is not yet over. Combined with the high-level inventory of ore at smelters and the expectation of a further decrease in the short term, it is expected that the phenomenon of tight ore supply may further intensify in the short term.

Byproduct prices are high, which will boost the profit of primary lead production and support the high operating rate of smelters. In the short term, many primary lead smelters plan to resume production or increase production, but considering that the problem of tight ore supply will further intensify, it is expected that the actual resumption of production of primary lead smelters will not meet expectations, and the production of primary lead in the short term may remain flat compared to the previous period.

Recycled lead poses greater environmental risk

With the drop in temperature, the demand for battery replacement has further increased, which may lead to a环月 increase in the supply of waste lead-acid batteries; the profit of imported lead ingots in China has further expanded, and the recent import volume of refined lead may further increase, which will supplement the raw materials for refined lead smelting, and the supply of refined lead raw materials has improved compared to the previous period. However, considering that the overcapacity of refined lead production is more serious, even if the supply of waste lead-acid batteries increases, it is still difficult to meet the smelting needs of smelters, and the price of waste lead-acid batteries is still prone to rise rather than fall.

Due to the improvement in the supply of raw materials for recycled lead, the raw material side supports the increase in recycled lead production. However, since the prices on the raw material side have not followed the increase in lead prices, the profit margin for recycled lead smelting is currently at a relatively high level for the year. Considering that the production rate of recycled lead smelting enterprises is still at an historically low absolute level, it is expected that there is still room for growth in recycled lead production in the short term. However, it is worth noting that with the start of the heating season in the north, the risk of environmental restrictions on recycled lead smelters in the north has increased, and weather factors have caused disruptions to the circulation of waste lead-acid batteries and recycled lead, and the supply of recycled lead may be temporarily tight in the future.

Demand continues to grow

At present, the demand for electric bicycles is beginning to transition from the peak season to the off-season, and with the weather turning colder, the sales of electric bicycles may experience a seasonal decline. Due to the mandatory implementation of the new national standard in the production process in September, the demand for the replacement of production lines and the transition period for the sales of old national standard electric bicycles is about to end. However, due to the demand for product conversion from electric bicycle dealers, there is still support for the demand for lead-acid batteries in the electric bicycle sector. In terms of automobiles, the car companies have started their year-end promotion, but considering the effect of demand drainage, it is expected that the growth of car sales in the short term will be limited.

From the perspective of the battery link, the new national standard production line for electric bicycles has not yet completed the replacement, considering that the old national standard sales transition period has ended, the demand for electric bicycle batteries still has support, but there is a lack of further growth space; the demand for automobile battery replacement has shown signs of recovery with the decrease in temperature, and it is expected that there will still be an increase in automobile battery demand in the short term. In terms of exports, due to the further deterioration of the domestic and foreign lead ingot price ratio, considering the trend of domestic lead acid battery going to sea, it is difficult for the export orders of lead acid batteries to improve significantly, or to maintain the drag on demand.

Future Outlook

In the fourth quarter, the macro situation has a negative impact, but it has a relatively limited impact on the short-term lead price. The variables on the supply side mainly lie in the recycled lead, considering the increase in raw material supply and the turn from loss to profit in the profit of recycled lead smelting, recycled lead may maintain the production rhythm. However, due to the start of the heating season in the north, the risk of environmental restrictions on recycled lead has increased, and the supply of recycled lead may become tight in stages.

On the demand side, the demand support for the electric bicycle sector still exists, the battery demand in the automobile sector has rebounded, the drag of export orders continues, and the overall demand for lead-acid batteries may increase slightly. Recently, lead prices have declined, and in the short term, the production rate of lead-acid battery enterprises may show an upward trend. However, considering the high inventory of lead-acid battery distributors, demand may only provide support for lead prices on the downside, and it is difficult to form a substantial pull.

Against this backdrop, the rhythm of lead price fluctuations may be dominated by the supply of refined lead, and if no other factors interfere, the lead price may show an upward trend after the large-scale resumption of refined lead production. However, considering the increased risk of environmental production restrictions for refined lead after the northern heating and the risk of rain and snow weather, which may lead to a blockage in the circulation of refined lead, it is expected that in the short term, the lead price will show an overall upward trend.

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