Lead prices experienced an increase following a substantial rise in withdrawal requests from LME warehouses. The requests grew by 35,225 tonnes to reach 74,975 tonnes, noticeably in Singapore and Taiwan, marking the largest increase since 9 June. As a result, LME lead prices rose over 1.8% on Friday.

Data from the Shanghai Futures Exchange revealed a rise in weekly inventories for all major base metals. Copper stocks increased by 3,094 tonnes to a total of 84,556 tonnes. Aluminium inventories went up by 5,625 tonnes, reaching 108,822 tonnes, while zinc stocks saw a 9.3% week-on-week rise to 54,630 tonnes, the highest level since 18 April.

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We believe the significant offtake requests for lead signal a tight physical market, creating a bullish outlook for the metal in the short term. Derivative traders should consider establishing long positions, such as buying call options or lead futures, to capitalize on this upward price pressure. The current price action, pushing lead futures above $2,250 per tonne, reinforces the strength of this immediate demand.

This scramble for physical units is likely driven by restocking needs, particularly within the automotive and industrial battery sectors which account for over 80% of global lead consumption. Historically, such sharp declines in available LME inventory precede sustained price rallies as supply chains struggle to catch up with spot demand. We see the large withdrawals in Singapore and Taiwan as a key indicator of this trend taking hold across Asia.

In contrast, the rising stockpiles on the Shanghai exchange for other base metals point to weakening demand within China. This suggests a bearish to neutral stance on copper, aluminum, and zinc is warranted. The ongoing struggles in China’s property sector and recent manufacturing data, like the Caixin Manufacturing PMI which has hovered near the 50-point mark indicating stagnant growth, support this cautious view.

Given this evidence, we would consider initiating short positions on metals showing the most significant inventory builds. The reported 9.3% weekly increase in zinc stocks to their highest level since April is a particularly strong signal of near-term oversupply meeting tepid consumption. Therefore, buying put options or shorting zinc futures could be a prudent strategy.

This creates a clear divergence between the market for lead and that of other industrial metals. We see an opportunity for a pair trade, going long on lead while simultaneously shorting a basket of the other metals, particularly zinc or copper. This strategy would profit from the widening performance gap between a supply-constrained lead market and a demand-challenged environment for other base metals in the world’s largest consumer.