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Many thousands of tonnes of lead already worth around $182 million have been sold on the Shanghai Futures Exchange (ShFE) for delivery next month, according to ShFE data, which is expected to trigger a price surge of the battery metal.
Producers often sell forward or take short positions to hedge their output, while speculators, such as traders and funds have taken short positions that can be a bet on lower prices or an arbitrage play.
ShFE’s website shows brokerage CITIC, subsidiary of CITIC Securities, at the end of last week was short 82,000 tonnes of lead to be delivered in September.
Brokers usually hold positions for clients. It is not known which company CITIC is holding the short position for.
CITIC Futures and CITIC Securities did not immediately respond to a request for comment.
Industry sources say on this occasion the short positions are likely to drive prices upwards because there is not enough lead stored in warehouses monitored by ShFE to cover them. As of Friday, stocks were 53,800 tonnes.
“It is extremely hard to get this amount of lead on the physical spot market. The export arbitrage window opened in June and many deliverable units were sold overseas,” a major lead producer said on condition of anonymity.
Export arbitrage typically refers to a situation where metal is bought at a lower price on ShFE and sold at a higher price on the London Metal Exchange or the CME.
Market open interest for lead on ShFE has jumped to 172,231 lots or 861,155 tonnes, more than double the number from June, rising alongside ShFE lead prices, which on Monday were around 16,190 yuan.
Lead is also under the spotlight on the London Metal Exchange, where traders noted a large holding of lead warrants that has raised concern about near-term supplies of lead on the LME market.
This has created a premium or backwardation for the LME’s cash lead contract over the three-month contract. Earlier on Monday, the premium hit $18.50 a tonne compared with a discount only a week ago and the highest since early July.
(By Julian Luk and Pratima Desai; Editing by Barbara Lewis)
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