Worsening lead arbitrage in China pushes traders toward exports

Traders in mainland China are seeking to sell stockpiled lead to Taiwan and Southeast Asia amid a worsening arbitrage for imports, which - since June - has shifted to being more favorable for exports.

This comes after a noticeable gap emerged between lead prices on the London Metal Exchange and the Shanghai Futures Exchange since May, which incentivized Chinese lead traders to buy LME stock while selling SHFE units.
But this import arbitrage has been worsening since June due to the continual shrinking of that price gap, market sources told Fastmarkets, and on the physical market, the gap between physical zinc price in China and overseas widened over April to May.
Some Chinese traders saw an export arbitrage opening last month, and on expectations that it would widen further this month, started to explore the feasibility of selling units to Taiwan and Southeast Asian countries.
The lead market in China is largely self-sufficient; there is typically little export or import activity, apart from a brief period in November 2019 when an export arbitrage window emerged and resulted in some outbound shipments.

Sources said...

Published

Yiwen Ju

July 19, 2021

12:11 GMT

Shanghai