LEAD TODAY: Price capped by February lows

Short term 
    (1-3M):
Up
Medium term 
(3-6M):
Flat
Long term (12M): Up
Resistances:
R1 1,666 40 DMA 
R2 1,671 20 DMA 
R3 1,752 100 DMA
R4 1,754 Mar 31 high
R5 1,897 200 DMA
R6 2,179.50 Feb 28 high
Support:
S1 1,888 Dec 9 low
S2 1,752 100 DMA
S3 1,778.50 Feb 28 low
S4 1,702 Mar 2016 low
S5 1,672 20 DMA
S6 1,551.50 Nov 2015 low



Stochastics:
Converging in high ground
Legend:

BB – Bollinger band
DMA - daily moving average
HSL - horizontal support line
SL - support line
MACD - moving average convergence divergence
U/DTL - up/downtrend line
H&S - head-and-shoulder pattern
RSI - relative strength index




Analysis
  • The LME three-month lead price has made a soft start on Monday June 8 after selling pressure emerged ahead of the February 28 low at $1,778.50 per tonne, as implied by the upper shadow formed on Friday's daily candlestick.
  • Momentum indicators appear inconclusive. While the 20 DMA has crossed above the 55 DMA, the stochastics have converged in high ground and the RSI has rolled lower.
  • So far lead has formed an inside day, which implies a continuation of positive momentum, with resistance seen at $1,804 per tonne. which marks the 50% Fibo of the January-March down-leg.
  • The previous double tops around $1,750 per tonne are now seen providing immediate support. Additional support is at the 20 DMA at $1,667 per tonne.
Macro drivers
LME lead stocks totaled 75,525 tonnes on Friday, up from 66,200 tonnes at the end of December 2019, while modest two-way stock flows continue. Currently, 21.7% of stock is booked for removal, up from 4% on May 5, following a recent increase in cancelations.

Shanghai Futures Exchange lead stocks totaled 9,052 tonnes on June 5, up from a multi-month low of 6,444 tonnes on May 8. We expect stocks to recover gradually amid improving scrap supplies and the restart of mine operations in Latin America.

Recent data reflects the gradual recovery in the global automotive sector. The China Association of Automobile Manufacturers (CAAM) estimates vehicle sales increased by 11% year on year in May, reflecting pent-up demand caused by the Covid-19 lockdown. In the United States, light vehicle sales ran at an annualized pace of 12.2 million units in May, up from 8.6 million units in April, but they remain significantly down on year-earlier levels.

Consultancy LMC Automotive forecasts global light vehicle sales to contract by more than 20% in 2020 overall to around 71 million vehicles.

The International Lead & Zinc Study Group (ILZSG) pegged the refined lead market in a modest 19,000-tonne surplus for the first quarter of 2020. But while downstream demand is reviving, we believe it will be outpaced by the recovery in metal production amid improving raw materials availability, leading the market to record a significant surplus in 2020. 

While mine operations in Peru, Bolivia and Mexico have resumed and are ramping up production, lockdown restriction have had a significant impact on production; Peru's national statistics agency INEI estimates lead mine production declined by 84.1% year on year in April.

Shutdowns across all automotive markets have also hit battery manufacturers, forcing several into bankruptcy. 

Conclusion
While lead is correcting after running into overhead resistance provided lead remains above Fridays low of $1,733 per tonne, we would view today's action as a correction and view last week's positive break as intact. We maintain our initial upside target as $1,804 per tonne, which marks the 50% Fibo of the January-March down-leg. 


All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

James Moore

james.moore@fastmarkets.com

Published

James Moore

June 08, 2020

08:34 GMT

London