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SMM Lead Market Morning Review

Release time:2014-12-02

SHANGHAI, Dec. 1 (SMM) – LME lead tumbled 1.39% to USD 2,020/mt last Friday, depressed by falling crude oil prices and a rise in the US dollar index. Trading volumes for three-month lead gained 1,736 lots to 3,486 lots, while positions expanded 1,387 lots to 111,880 lots. At the same time, LME lead inventories shrank 125 lots to 217,775 lots. 

Lead for January delivery on the Shanghai Futures Exchange, the most active contract, dipped to RMB 13,415/mt in last Friday’s night session, falling below major moving averages.

The Organization of Petroleum Exporting Countries (OPEC) stated last Thursday that it will keep the oil output target unchanged at 30 million barrels per day. The Organization aims to push oil prices down to drive US high-cost shale gas out of the market. In response, US crude oil prices fell by more than 10% on Thursday, while Brent oil prices dropped below USD 70 per barrel. The decline in oil prices had a contagion effect on base metals prices, with LME base metals down over 1% across the board. 

Base metals prices also took a hit from a slump in gold prices. The proposal to require the Swiss central bank to hold a fifth of its reserves in gold was opposed by 77.3% of voters. This has dashed the hope that the Swiss central bank will increase 1,500 mt gold in the coming five years. In response, London gold tumbled 1.8%. 

China’s State Council has issued the Regulations on Deposit Insurance (Draft for Comment) and relevant notices, promising an upcoming adoption of the first deposit insurance system. The People’s Bank of China (PBOC) estimated that the maximum RMB 500,000 compensation can be available to all deposits of 99.63% depositors. The imposition of the Regulations should facilitate the PBOC to cut the reserve requirement ratio (RRR).

European and US equities were mixed. The US dollar index rose 0.39%. LME copper and zinc closed down over 2% last Friday.

PMIs from China, Europe, and the US are expected to come in downbeat on Monday. Nevertheless, market participants should be slightly cautious in the wake of a sharp decline last Friday and amid a wave of major news due for release this week.

LME lead is set to fluctuate at USD 2,020-2,040/mt, and the most active SHFE 1501 lead contract is forecast to hover at RMB 13,400-13,500/mt. Traded prices on China’s spot lead markets should slip to RMB 13,400-13,500/mt on Monday.