Sunday, November 10, 2013

Higher demand to sustain long-term rally in lead.

Lead, one of the most widely used non-ferrous metals is mainly used in the manufacturing of lead-acid batteries. China is the world leader with about 43 per cent share in the total global refined lead production as well as consumption. India consumes about 5 per cent of the global refined lead consumption.
DEMAND TO rise IN 2014
The International Lead and Zinc Study Group (ILZSG) forecast the demand for the refined lead to increase this year and next. In its study released earlier this month, it expects the demand for 2013 to increase by 5 per cent and for 2014 by 4.6 per cent. The consumption in China, the world’s largest consumer is expected to go up by 7.4 per cent next year on account of the expansions in automotives and mobile phone systems.
In addition to the general increase in demand mentioned above, there are two important factors that could drive the lead price higher next year. Firstly, in Europe where the demand was in a decline in 2011 and 2012, ILZSG forecast the demand to rise by 1.3 per cent this year and 2.3 per cent in 2014.
Secondly, ILZSG expects the lead market to run into a deficit for the first time since 2009 with an estimated shortage of 23,000 tonnes in 2014. These two factors could be the major supports for the lead price to go higher next year.
In this week’s dissector we see the outlook of the lead futures contract traded on the Multi Commodity Exchange (MCX). The MCX contract has closed for the week at Rs 135.4.
Long-term view: The MCX lead futures contract is in a strong uptrend since 2009. The price is in a steady uptrend since it bottomed near Rs 40 in December 2008. Strong support is at Rs 110 and at Rs 100 which might not be broken very easily.
The uptrend will remain intact as long as the contract trades above Rs 100. Intermediate fall to these supports at Rs 110 and Rs 100 will be a good buying opportunity. A rise from Rs 110-100 supports will have the potential to take the price higher towards Rs 160 in the long-term.
Medium-term view: The MCX lead futures contract is in a medium-term downtrend. The price fell about 19 per cent from its December high of Rs 155.4 to a low Rs 125.3 this month. The contract is currently witnessing a corrective rally of this medium-term downtrend. This corrective rally can extend further to test the important Fibonacci retracement resistances near Rs 140 and Rs 144.
There is a high probability of the contract halting its corrective rally in Rs 140-144 region. Thereafter, the price can decline targeting Rs 120 and Rs 115 which are the important medium-term support levels.
Short-term view: The short-term outlook is bullish. The MCX contract has found good support near Rs 125 and has risen about 8 per cent in the last few weeks. Key short-term supports to be watched are the 100-day moving average near Rs 131.5, trend support near Rs 127 and then the 200-day moving average at Rs 124. The downside could be limited while these supports hold. Immediate resistance is near Rs 136. But this resistance is vulnerable to get broken and the contract can rise to Rs 140 in the short-term.

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