Labor Day Holiday Lead Market Analysis and Post-Holiday Market Outlook

During the Labour Day holiday, a brief pause in trading occurred in both the Shanghai Futures Exchange and the domestic spot lead market. While trading came to a standstill domestically, the London Metal Exchange (LME) continued with its regular trading activities. The period leading up to the holiday saw a decline in non-ferrous metals, driven by the strength of the US dollar on April 30. Specifically, LME lead displayed a fluctuating trend, initially surging to $1,983/mt in the morning before retracting its gains, ultimately closing at $1,931.5/mt on May 2, marking a drop of 1.3%.

During the Labour Day holiday, critical macro events unfolded, including positive signs emerging from Sino-US trade negotiations. The US implemented a 25% tariff on automotive parts, despite introducing two new categories of tariff exemptions and revoking the “low-value package tariff exemption” for China. Additionally, expectations for US Fed interest rate cuts saw a revision following the release of Q1 GDP data showing negative growth on a quarter-on-quarter basis, contrasting with better-than-expected April non-farm payrolls data, suggesting a robust US economy and labor market with no signs of recession. Consequently, market predictions for US Fed interest rate cuts were adjusted from four to three cuts, with the initial rate cut anticipated in July.

The holiday period also saw variations in lead ingot inventories, with overseas LME lead ingot stocks decreasing by 1,475 mt to 264,125 mt by May 2, while domestic SHFE lead ingot inventories increased by 1,132 mt to 46,786 mt on April 30.

Looking ahead post the Labour Day holiday, different schedules among upstream and downstream enterprises in China’s lead industry chain, particularly among downstream lead-acid battery companies, are anticipated to impact lead ingot inventories. This could potentially lead to a decline in lead prices as inventory levels rise. The operating rate of SMM lead-acid battery firms fell significantly by 18.5 percentage points to 55.06% during the holiday week, reflecting reduced lead consumption following the holidays.

Production activities of primary lead smelters are expected to remain steady, with minor fluctuations, while some lead smelters could resume operations post-maintenance, impacting lead ingot inventory levels. Moreover, a rise in the number of secondary lead smelters reducing or suspending production is likely due to the traditional off-season for lead-acid batteries during April and May, affecting lead consumption and reducing the availability of scrap batteries. The lack of scrap batteries in the market could lead to rising prices and losses for secondary lead enterprises. Continued losses may result in a further downsizing of secondary lead production, contributing to a balance in lead consumption.

The holiday shutdown, potential inventory accumulation, and production changes in smelters will influence lead prices post-holiday, with the risk of inventory buildup likely leading to a downtrend. However, factors such as supply shortages of raw materials and losses in secondary lead smelting are poised to provide a supportive backdrop, ultimately aiding in a rebound of lead prices. As trading resumes following the holiday period, monitoring lead ingot inventories and production trends of smelters will be crucial for understanding market dynamics.