Lead managed to move on towards the road to recovery in the month of July mainly due to reversal in LME stockpiles. The stocks, which have tumbled, for the first time since early 2009, have provided a strong support to prices.

On the other hand, China is witnessing a turnaround story. It has been a net exporter of lead from November 2009 till April 2010 until recently, and now China’s imports of lead suggest that prices may move higher. Furthermore, lead mine production and refined lead output of China has risen over 25% and 2% respectively in the early half of this year compared with the same period in 2009.

However, looking at the overall scenario, the expected revival in demand, predominantly from the auto sector and relatively low level of inventories on the LME should see lead’s fundamentals perform well in the coming months.

The economic numbers from India and China are not showing much enthusiasm and euro zone economy is rather demonstrating signs of slowdown but as long as the view is maintained, that this is not double dip recession, any significant correction can be taken as buying opportunity. With demand expected to recover in the coming months, we can see lead hanging on to much of recent gains.

Boosting this view is the fact that production restarts outside China have been limited and some recent closures of mines may put further pressure on inventories. Lead has painted a remarkable picture this month by rising more than 10%.

Its performance has been superlative as compared to all other base metals. As per the price pattern on weekly charts , it has retraced close to 38% of the downward rally which started once the metal formed a double top at 122/kg mark and thus moved down to test the low of Rs72.55/kg.

With the strength displayed by metal in recent days, it seems to continue with its upward movement in coming days, but possibility of some correction in prices from higher levels cannot be ruled out as the metal has already rallied a lot and is expected to rest somewhere around Rs95/kg, but keeping in mind the overall momentum, one can employ lower levels to buy in to the metal.

Courtesy: Religare Commodities

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