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A recent scramble to buy LME warehouse lead stocks has pushed inventories to the lowest level in over 20 years and to the equivalent of a few hours of global consumption, according to Reuters. As of this morning, “on-warrant” LME warehouse lead stocks, which are available to trade, totaled 10,975 mt, down 17,050 mt, or 61% since October 3. AEGIS notes the recent rush on LME warehouses was likely initiated by end-users that are worried about global supplies. Soaring electricity prices in Europe have forced several large smelters to curtail production or contemplate shutdowns due to unprofitability. One Germany-based smelter has been closed for over a year due to flood damage and related regulatory issues. China, which is the world’s largest lead miner and refiner, is also grappling with low scrap supplies and power issues. |
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As this market is nearly depleted of lead inventories, prices could rally further if global supply issues continue to mount, and end-users struggle to find raw materials. Despite the low stocks, LME lead prices are down over 10% on the year, even with the recent rally, as last trade was $2,026.50 (7AM CST). End-users such as battery producers might consider using the recent dip in prices by applying simple hedges involving swaps and call options. One other possible strategy is a costless collar. In this case, a “zero-cost collar” creates a maximum and minimum lead price for a battery producer, as they would simultaneously buy a call option (creating a cap, or maximum) and sell a put option (creating a floor, or minimum). The call and put premiums offset, making the construction costless. It is popular because of the upside price protection, but you sacrifice access to much lower prices if prices should fall. Such positions are standard for consumer hedging, but they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (10/12/2022) |
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Note: Clients with AEGIS Platform access can see this and other research, plus hedge portfolio reporting and tools here. |
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Price Indications |
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Today's Charts |
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AEGIS Insights |
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10/05/2022: AEGIS Factor Matrices: Most important variables affecting metals prices 10/05/2022: European Aluminum Smelters Might Have Negative Margins Through 2023 8/31/2022: Will Chilean Production Issues Drive Copper Prices Higher? 8/24/2022: Chinese Aluminum Supply Issues Could Rally Prices |
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| Important Headlines | ||
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10/11/2022: Column: Supply hits catch up with lead as LME stocks shrink 10/10/2022: How a ban on Russia’s mining giants could shake the metals world 10/8/2022: Alcoa Inks 131 MW Wind Power Agreement For 2024 Restart Of San Ciprián Aluminium Smelter 10/7/2022: ISRI opposes Mexico Fe, Al scrap export ban |
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Important Disclosure: Indicative prices are provided for information purposes only, and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee to the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as “edge,” “advantage,” “opportunity,” “believe” or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.
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