Commodity Analysis

No blues for lead as demand grows

Gurumurthy K | Updated on May 04, 2014 Published on May 04, 2014

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The lead market will continue in deficit this year too despite supply going up



Lead prices have risen about 2 per cent in the last one month in the international market on prospects of higher demand from car makers in the US, Europe and China.

Though the lead market moved into a deficit in 2013, till recently, prices were on a downward course. Between August last year and March, the commodity corrected 22 per cent.

However, prices may stand to gain from here as demand is expected to go up further.

The International Lead and Zinc Study Group (ILZSG) forecasts global demand for refined lead to increase 4.4 per cent to 11.73 million tonnes this year.

China, the world’s largest consumer of lead, accounting for over 45 per cent of global consumption, will be a major driver on the demand side this year as well. According to the ILZSG, Chinese demand for lead is expected to rise 7.4 per cent.

On the supply side, global refined lead production is expected to rise by 4.3 per cent in 2014 to 11.68 million tonnes.

A 5.7 per cent increase in production from Korea, the third largest producer in the world, and a 4.4 per cent production increase from Europe will contribute to an overall increase in global lead production.

But given that demand will also be increasing, the lead market will continue in deficit in 2014 too by 50,000 tonnes.

Indian demand for lead is on the rise. According to data from the World Bureau of Metal Statistics, refined lead production and consumption in India rose 6.7 per cent and 6 per cent, respectively, in 2013.

The domestic demand is largely driven by the consumption of lead acid batteries in various sectors, especially the automobile sector. The Indian auto sector is expected to revive this year. A report from Dun & Bradstreet Information Services states that economic improvement accompanied by an interest rate cut will support the auto sector. In such a scenario, demand could pick up in the later half of 2014, which could aid in price increase.

Also, fluctuation in the Indian rupee will have an impact on the domestic price.

Outlook

Long-term view: The long-term trend is up for the MCX-Lead (₹125.7 per kg) futures contract. Strong long-term support is at ₹115.

The 200-week moving average is also placed at the same level. Though this support can be tested in the coming months, a break below this level might not be very easy.

A reversal from this support will keep the long-term uptrend intact and can take the contract higher towards ₹150 and even ₹160.

The outlook will turn negative only if the contract declines below ₹115. Such a break can drag the price lower to ₹105 and ₹100 thereafter.

But the probability of such a fall is low.

Medium-term view: The medium-term trend is down. Strong resistance is present in the ₹133-138 zone. The outlook will remain bearish as long as the contract trades below this zone.

The contract came off sharply last week failing to rise beyond the medium-term resistance. A test of ₹120 looks likely now. The contract will now need to breach ₹138 decisively to turn the outlook bullish. It will then result in a fresh rally targeting ₹145. The 100-week moving average, currently near ₹122.8, is a key intermediate support for the contract.

Short-term view: The MCX-Lead contract was in a short-term uptrend. But this trend reversed in the last week as the contract failed to breach its 200-day moving average resistance at ₹132. The contract is now trading below its 21-day moving average, currently at ₹126.6. Inability to bounce beyond ₹126.6 from current levels will keep the contract pressured. It will result in a fall to test ₹122 in the coming days.

Published on May 04, 2014

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