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'Cost-plus’ lead deals inked as talks continue

Keywords: Tags  lead contracts, secondary lead, lead premiums, LME, Daniel Fitzgerald


NEW YORK — Lead market sources say that some 2013 contracts have been finalized using a "cost-plus" pricing model, although one trader is adamant that no major business has been done and says that producers and consumers are still "butting heads."

One broker told AMM that several contract discussions "are in their very final stages," with secondary lead producers having "held the line" on adopting a pricing model that incorporates their scrap acquisition and production costs rather than London Metal Exchange pricing (amm.com, Nov. 12).

"Some consumers seem more inclined to say they understand the situation, that they don’t like it, but they’ll do it for the first three months," he said.

One producer source also said that "there has been some success" in pursuing a cost-plus model for 2013 contracts.

However, a trader said that the majority of business has yet to be finalized. "I don’t believe any major contracts were signed at cost-plus. Maybe some minor ones," he said. "We’re still seeing major consumers and producers butting heads. ... I think they’re going to go month by month."

The abundance of cancelled warrants for lead metal in LME warehouses could come into play, the trader added. "If (consumers) don’t book anything with the secondaries, they may just buy some of that metal."

The LME is currently reviewing a rule change that would require warehouses to deliver out an additional 500 tonnes per day of cancelled material stuck in a queue behind another "dominant" metal (amm.com, Nov. 20). There are 40,625 tonnes of canceled lead warrants stockpiled in Detroit, where primary aluminum is the dominant metal.

Meanwhile, primary lead spot premiums have dipped to a range of 13 to 15 cents per pound from 14 to 16 cents, with market participants reporting a slight easing as the LME price moved higher.

The LME’s three-month lead price ended Monday’s official session at $2,241 per tonne ($1.017 per pound), up 4.2 percent from $2,150.50 per tonne (97.5 cents per pound) Nov. 12.


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