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China’s exports of refined lead remained robust over the first half of this year, extending a trade pattern that has been running since the closing months of 2021.
The steady stream of Chinese shipments has served to plug supply gaps in Western markets and helped replenish depleted London Metal Exchange (LME) stocks.
LME inventory has more than doubled to 51,850 metric tons since the start of the year. It’s still low by any historical yardstick but now exceeds the tonnage sitting in Shanghai Futures Exchange (ShFE) warehouses.
China’s export impulse is keeping the local market tight, which appears to be attracting a lot of speculative attention to the Shanghai lead contract.
China was a significant net importer of lead in refined form over the 2017-2020 period but flipped to net exporter in 2021 as Western smelter closures tightened supply chains and drove physical premiums to record highs.
The export flow showed signs of slowing between March and May but picked up pace again in June with outbound shipments totalling 15,000 metric tons, the highest monthly total since January.
Cumulative exports in the first half of the year were 74,500 metric tons, down by only 15% on the first half of 2022, when the country shipped the most refined lead since 2006.
Imports, meanwhile, amounted to a minimal 1,200 metric tons in the first six months of this year, meaning China remained a consistent net exporter over the period.
Exports in the first quarter went to as far as Europe and the United States but have since become more Asia-centric.
The three top destinations over the first half of 2023 were Taiwan (17,500 metric tons), Vietnam (16,100 metric tons) and Bangladesh (10,300 metric tons).
Some of China’s outbound shipments have been trickling into the LME warehouse system.
The amount of Chinese lead on LME warrant increased from zero at the end of January to 6,750 metric tons at the end of June.
Warranted stocks of Taiwanese brand lead also rose sharply from 5,400 to 11,650 metric tons over the same period, suggesting a displacement flow resulting from China’s exports to the island.
It’s noticeable that all the LME stocks rebuild has played out at just two locations – Kaohsiung in Taiwan and Singapore – attesting to the impact of China’s exports on availability in the Asian market.
There are still no registered lead stocks in the United States and only 1,200 metric tons in Europe, all of it in the form of cancelled warrants awaiting physical load-out.
However, the supply deficit outside of China should be starting to close thanks to the April restart of Germany’s Stolberg smelter combined with demand weakness from the automotive sector, the dominant user of lead in the form of lead-acid batteries.
The Chinese market, by contrast, now shows signs of tightening.
While LME stocks have been rising, ShFE inventory has been sliding.
Shanghai stocks peaked at 77,216 metric tons over the Lunar New Year holiday in February but have since fallen back to 39,555, now up only 4,338 metric tons on the start of January.
This time last year they stood at almost 90,000 metric tons and two years ago they were close to 170,000.
Low exchange stocks have kept Shanghai time-spreads tighter than those on the LME and appear to be fuelling a burst of speculative activity.
Market open interest on the ShFE lead contract has surged to a life-of-contract high of 181,269 contracts. Activity has mushroomed in tandem with a sharp price rise, suggesting money is entering the market on the long side.
The Shanghai bulls have so far made little impact on the London market, where three-month lead remains locked in a narrow $2,000-2,200 range, last trading at $2,160 per metric ton.
The divergence between the two markets suggests the dynamic of lead’s east-west balancing act is shifting back to China.
If so, the country’s recent role as lead supplier of last resort to the rest of the world may be about to change.
(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)
(Editing by Emelia Sithole-Matarise)
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