LME lead prices recovered modestly during China's National Day holiday period, recording only a marginal 0.5% decline as macroeconomic expectations shifted sharply following weaker-than-expected US employment data. Lead traded in a volatile pattern throughout the holiday. After closing at $1,871.5/mt on September 30, prices fell to $1,860/mt on October 1, marking their lowest level since mid-July.
Following the release of US nonfarm payroll data on October 2, which showed significantly weaker employment growth than anticipated, lead prices stabilised around $1,853.5/mt. The market subsequently rebounded, with LME lead reaching $1,881.5/mt by 18:00 Beijing time on October 7, according to Shanghai Metals Market analysis. The price volatility reflected a rapid reversal in Federal Reserve monetary policy expectations.
Strong US economic data released in late September, including PMI figures at multi-year highs, had initially pushed market expectations of an October rate hike to 70-80%, strengthening the US dollar and pressuring base metals broadly. However, September nonfarm payroll data delivered a significant downside surprise, with the US economy adding only 29,000 jobs, less than one-third of market expectations. The unemployment rate rose to 4.2%, while the previous month's reading was revised down from 162,000 to 133,000.
Following this data, the implied probability of an October rate hike plunged from 70-80% to 15-28%. LME lead inventories continued their downward trend, falling from 356,600 mt on September 30 to 349,400 mt on October 6, a decline of 7,200 mt. However, this apparent tightening masks underlying structural shifts.
Cancelled warrants increased by approximately 8,600 mt on October 6, with the cancelled-warrant ratio rising to 10.3%. Off-warrant stocks also increased from 77,500 mt to 86,300 mt, representing a net increase of 8,800 mt, with most changes concentrated in Singapore warehouses. According to SMM's analysis, much of the metal under cancelled warrants has shifted from registered to off-warrant inventory within the warehouse system rather than actually leaving circulation.
The Cash-to-three-month contango widened from $36.49/mt on September 30 to $40.91/mt on October 6, indicating that the overseas physical market is not currently experiencing a supply shortage. The currently elevated absolute level of LME stocks, combined with the widening contango, suggests that declining headline inventories are insufficient to support expectations of tightening overseas supply. From a positioning perspective, LME COTR data published on October 6 showed that investment funds reduced long positions by approximately 4,600 lots and added roughly 7,000 lots of short positions during the week ended October 2, contributing to the price decline during the holiday period.
Funds shifted into a net-short position, with their net-long position as a percentage of open interest declining from minus 8.22% to minus 12.42%. China's domestic lead market faces an anticipated influx of supply in October. Primary lead smelters in central and northern China resumed operations in late September following maintenance, though production remained unstable during the initial restart phase.
Secondary lead producers, which had reduced output during the National Day holiday, are expected to resume operations, forming two main sources of additional supply. However, the actual pace of output growth will depend on individual smelter restart progress. Domestic demand weakened temporarily during the holiday after pre-holiday stockpiling concluded.
The combined weekly operating rate of lead-acid battery producers across five major provinces fell by 13.98 percentage points week-on-week between September 25 and October 1. Lead-acid battery producers had already completed pre-holiday restocking, and in the early post-holiday period, downstream consumers are likely to prioritise drawing down their own inventories, resulting in relatively slow purchasing demand recovery. SMM social inventories of lead ingots across five major regions declined by approximately 9,200 mt during the final week before the National Day holiday, reaching 48,600 mt as of September 30.
Although some inventory accumulation is expected after the holiday, the upside is likely to remain limited, as smelters have presold part of their October production. Looking ahead, external uncertainty remains elevated, with the market continuing to price in approximately 60% probability of a December rate hike. University of Michigan Surveys of Consumers results on October 9 and September US CPI data on October 14 will be key macroeconomic events to monitor.
As macroeconomic pressure pushed overseas prices lower, China's lead import window has reopened, and market participants should closely monitor the pace at which overseas lead ingots are transferred into the Chinese market. SMM analysis suggests that the lead price trading range may widen after the holiday. Prices are likely to remain volatile at elevated levels initially before coming under pressure as the expected increase in supply is gradually realised.
The domestic inventory base remains low, with both social inventories and finished-product stocks at relatively low levels, which may provide some price support in the short term. Source: Shanghai Metals Market (SMM) research team, LME data, US Bureau of Labor Statistics.
Source: news.metal.com