Lead Traded in London Seen by Credit Suisse Lagging Behind China

Lead prices on the London Metal Exchange will underperform Shanghai prices that were under pressure from slumping battery demand in China, the biggest user of the metal, Credit Suisse Group AG says.

Lead for immediate delivery on the LME jumped 15 percent since Oct. 26 while prices on the Shanghai Futures Exchange declined 0.8 percent. The attached chart shows the Shanghai discount to the LME prices widened to 3,484 yuan ($559.76) a metric ton on Jan. 2, the most since July 26, 2011.

“Prices in London should start to reflect developments in China,” Ivan Szpakowski, an analyst at Credit Suisse in Singapore, said by phone today. “On a three-month horizon, we think LME will underperform.”

Inventories of the metal monitored by the Shanghai Futures Exchange are at a record high of 78,328 metric tons, bourse data showed last week.

The Shanghai discount to the LME price is calculated including the 17 percent value-added tax on the metal imported into China, plus a 5 percent import duty.

Prices in Shanghai missed the LME rally because demand for batteries in cars and e-bikes in China slowed, Szpakowski said. LME prices climbed as investors bought metal on limited supply in the U.S. and forecasts for global demand to exceed production next year, according to Szpakowski. “We think the market in the U.S., while it remains structurally tight, is not quite as bad right now as it was six months ago. It’s eased slightly in the U.S.”

Shortage Outlook

Lead is still poised to rise by the end of this year as demand in China improves and in anticipation of demand exceeding supply in 2014, Szpakowski said. Lead for delivery in three months on the LME traded at $2,332 a ton by 8:25 a.m. today, while the Shanghai price for January delivery settled at 14,995 yuan a ton. The LME metal will rise to an average $2,450 a ton in the fourth quarter from $2,300 a ton in the second quarter, Credit Suisse forecasts.

“Relatively speaking, compared with other metals, lead has outperformed in recent months and it’s probably gone to some degree ahead of its fundamental story,” Szpakowski said.

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