Market Briefing - September 4, 2009

Lead prices have remained strong since our last monthly, soaring to $2,118/tonne on the closing day of August, the highest level for over a year. The monthly average, at $1,900/tonne for August, is up 13.2% on the July average, and is representative of the sixth consecutive monthly increase. Further gains were recorded in early September as prices surged to $2,224 in early September.

We believe that the strength over the past few months has been driven by speculative buying on the exchanges. However, the most recent rally which has emerged in late August, when the majority of the other base metals pulled back, has been driven by concerns over Chinese production in the wake of a series of lead poisoning accusations involving several smelters.

The key feature of the lead market is that bullish developments, such as heightened speculative interest and curbs on supply in China, are taking place against a background of relatively low inventories. Although just over 10,000 tonnes were added to LME inventories in August, the stock level on September 4 of 121,475 tonnes is only 76,325 tonnes higher than the beginning of the year and in terms of the number of weeks consumption at 1.2 weeks it is the lowest of the base metal complex.
Whilst from a statistical point of view Chinese demand appears strong, China is one area where stocks do seem to have accumulated. We note that a significant amount of inventory is likely to be held in Chinese warehouses, however, in common with most of the other base metals, the reports of a stock build in the country have largely been ignored by the market. Any additional increases could be stalled by the much reported shutdowns as a result of the lead poisoning concerns.

> This article gives the introduction to our latest detailed analysis on the market. To access our latest detailed monthly report on the base metals markets plus the recent briefing update, click on the links below.

> Base Metals Market Briefing - December 9, 2008.

> Base Metals Market Briefing Update - December 16, 2008.

Disclaimer: Whilst every effort has been made to ensure the accuracy of the information used in this document, GFMS Metals Consulting cannot guarantee such accuracy and GFMS Metals Consulting does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this information.