A recent sharp risenin lead canceled warrants is — unlike most other base metalsn— fundamentally driven, in that it reflects actual demand,nBarclays Capital said last week. LME canceled warrants asna proportion of total stocks held in LME warehouses is nownat an average 15% across all base metals, BarCap said,nversus a five-year average just below 5%. A rise in cancelednwarrants, which are warrants for metal canceled for deliverynbut not necessarily withdrawn from warehouses, can signal anrise in physical demand. But the real question, the bank said,nis: “What degree of this is driven by real demand, as suchnoffering the prospect of a tightening in market fundamentalsnand support for prices, or ... redistribution of materialnbetween warehouses, which may lower visibility on materialnbut still offer the threat of reappearance in the future?” Thenlead market — and that of tin — seems to be the only basemetalnmarket that show a clear connection between the spikenin canceled warrants and actual demand, BarCap said. “Innboth cases, the Chinese market is currently tight, the importnarbitrage is open (firmly in the case of tin), and a majoritynof the pick-up in cancellations have come at nearby Asiannwarehouses,” the report said, adding lead is being used bynChinese battery producers to fill the gap due to lower Chinesenbattery exports resulting from plant shutdowns last year.
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