After three years of exports China is now short of lead: Andy Home

Reuters

After three years of exports China is now short of lead: Andy Home

जुलाई 18, 2024 at 11:00 अपराह्न UTC

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Repeats column without change

By Andy Home

LONDON, July 18 (Reuters) -The global lead market has bifurcated since the start of June with Shanghai Futures Exchange (ShFE) prices significantly outperforming the London Metal Exchange (LME).

LME three-month lead CMPB3 touched a two-year high of $2,359 per metric ton in May but has since retraced to $2,190 and is now up by just 4.3% on the start of the year.

The equivalent Shanghai price SPBcv3 has marched higher to six-year highs and is up by 12.4% on the start of January.

The divergence is more pronounced on a cash basis with the LME forward curve in contango and the Shanghai curve in backwardation.

The contrasting fortunes of the two markets for the battery metal derive from the distribution of inventory. The LME warehouse network is awash with metal, while Shanghai is gripped in a rolling squeeze.

FEAST AND FAMINE

LME lead stocks more than doubled over the first quarter of 2024, hitting an 11-year high of 275,925 tons on April 2.

The headline figure has since slipped to 208,525 tons but there's ongoing churn as stocks financiers seek out cheaper storage options, which is itself a sure sign of an over-supplied market.

The bulk of this year's inflow has been Indian metal, which accounted for 46% of warranted stocks at the end of June, up from 24% at the start of the year.

It's worth noting that there were another 140,700 tons of off-warrant inventory at the end of May, most of it located at Singapore, the current hub of LME lead stocks activity.

LME warehouses in Singapore have seen 63,000 tons of fresh warranting activity over June and July, suggesting a large part of that off-warrant tonnage is still there.

ShFE stocks, by contrast, total a relatively modest 59,408 tons, representing a marginal year-to-date increase of 6,524 tons.

SHANGHAI SHORT

Market open interest on the ShFE lead contract has been running at elevated levels, registering a life-of-contract high of 215,224 contracts in the middle of June.

It currently stands at 184,625 contracts, up from 69,000 as recently as March.

The lift in trading activity has coincided with a sharp tightening of the Shanghai time-spread structure with backwardations running all the way through to June next year.

Short-position holders are evidently struggling to find sufficient units to deliver to exchange warehouses, although more metal is expected to arrive on the July contract expiry.

Exchange tightness reflects a shortage of material from both primary and secondary smelters in the domestic market. Spot physical transactions are taking place at a premium even to the elevated ShFE cash price, according to local data provider Shanghai Metal Market (SMM).

China's primary lead production fell by 4.7% and its secondary output by 8.5% over the first half of the year, according to SMM, reflecting shortages of both mined concentrates and battery scrap.

Imports of concentrates slid by 13% to 418,500 tons in the January-May period with primary smelters topping up with battery scrap at the expense of pure secondary refiners.

REVERSE FLOW

The imbalance between a well-supplied Western market and a tight Chinese market is the polar opposite of the situation just a couple of years ago.

The destructive impact of COVID-19 on supply chains caused LME stocks to shrink to below 50,000 tons in 2021 with physical premiums soaring as buyers struggled to source available metal. ShFE stocks, by contrast, rose above 200,000 tons in September of that year.

The east-west imbalance opened an export arbitrage window through which Chinese smelters shipped much-needed supply to western markets.

China flipped from being a net importer of refined lead in the 2017-2020 period to a significant net exporter over the following years.

Net outbound flows totalled 93,000 tons in 2021 and grew to 115,000 tons in 2022 and to 185,000 tons last year.

Exports have slowed appreciably this year with the January-May total falling by 76% year-on-year to just 14,500 tons.

The current out-performance of Shanghai relative to London has now opened a profitable import arbitrage with signs that trade flows are about to reverse.

This week has brought a spate of LME stocks cancellations with 29,425 tons being prepared for physical load-out.

The benchmark cash-to-three-months spread CMPB0-3 has contracted sharply to a contango of $22 per ton from over $60 last month.

It's possible of course that this is just metal on a run-around to cheaper LME storage but it's clearly caught the London market off-guard.

It's quite possible that this particular tranche of lead may not reappear in a different LME shed in the near future but may be embarked on a one-way journey to China.

The opinions expressed here are those of the author, a columnist for Reuters

Lead stocks have shifted from east to west https://tmsnrt.rs/4d5e8B8

Shanghai lead near 6-year highs amid time-spread tightness https://tmsnrt.rs/46cBYIE

Editing by David Evans

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अस्वीकरण: XM Group के सत्व केवल निष्पादन वाली सेवा और हमारी ऑनलाइन व्यापार सुविधा में पहुँच प्रदान करते हैं, ताकि व्यक्ति वेबसाइट पर या उसके जरिए उपलब्ध सामग्री को देख सके और/या उसका उपयोग कर सके। इसका प्रयोजन इसे बदलना या विस्तार देना नहीं है, न ही वह इसे बदलता या विस्तार देता है। इस तरह की पहुँच हमेशा ही निम्नलिखित के अधीन रहेगी: (1) नियम और शर्तें; (2) जोखिम चेतावनियाँ; और (3) पूर्ण अस्वीकरण। इसलिए ऐसी जानकारी सामान्य सूचना से अधिक कुछ भी नहीं है। विशेष रूप से, कृपया इससे अवगत रहें कि हमारी ऑनलाइन व्यापार सुविधा की सामग्रियाँ न तो किसी चीज का अनुरोध करती हैं, न ही वित्तीय बाजारों में प्रवेश करने की पेशकश ही करती हैं। किसी भी वित्तीय बाजार में व्यापार करने के साथ आपकी पूँजी को उल्लेखनीय जोखिम है।

हमारी ऑनलाइन व्यापार सुविधा में प्रकाशित सभी सामग्रियाँ शैक्षणिक/सूचनात्मक प्रयोजनों मात्र के लिए हैं, और इनमें वित्तीय, निवेश टैक्स या व्यापार सलाह और सुझाव नहीं हैं - न ही ऐसा समझना चाहिए कि इनमें ये सब हैं; न ही इनमें हमारी व्यापार कीमतों का अभिलेख है; न ही इनमें किसी वित्तीय उपकरण में लेन-देन करने का निमंत्रण या अनुरोध है; न ही ये आपको अवांछित वित्तयी प्रोमोशन पेश करती हैं।

इस वेबसाइट में मौजूद कोई भी तृतीय पक्षीय सामग्री, तथा XM द्वारा तैयार की गई सामग्रियाँ, जैसे: अभिप्राय, समाचार, अनुसंधान, विश्लेषण, कीमतें और अन्य सूचनाएँ या तृतीय पक्षों की साइटों के लिंक, "जैसा-है-वैसा" के आधार पर बाजार के बारे में सामान्य टिप्पणी के रूप में उपलब्ध कराई गई हैं, और वे निवेश हेतु सलाह नहीं हैं। जिस हद तक कीसी सामग्री को निवेश अनुसंधान मान लिया जाता है, उस हद तक आपको ध्यान में रखना होगा और इसे स्वीकार करना होगा कि वह सामग्री इस उद्देश्य से और निवेश अनुसंधान की स्वतंत्रता को बढ़ावा देने के लिए कानूनी आवश्यकताओं के मुताबिक, तैयार नहीं की गई है, और इसलिए उसे प्रासंगिक कानूनों और विनियमों के तहत विपणन संप्रेषण माना जाएगा। कृपया सुनिश्चित करें कि आपने गैर-आश्रित निवेश के बारे में हमारी सूचना को पढ़ और समझ लिया है। पीछे दी गई जानकारी के बारे में अनुसंधान और जोखिम चेतावनी यहाँ उपलब्ध है।

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