After months of dull sideways trading London lead burst into life last week, jumping almost $200 per tonne to hit a 16-month high of $2,157.
Investment money is flowing into both the Shanghai and London markets and the latter is experiencing tightening time-spreads thanks to a dominant long position.
An outage at Nyrstar’s Port Pirie lead smelter in Australia adds a little extra spice just as the lead market gears up for northern hemisphere winter and the boost to demand from “battery kill” season.
Batteries are still the bedrock of the lead market and are going to remain so for the foreseeable future. The world has got excited about lithium thanks to Tesla and other electric vehicle pioneers but all of them still need a traditional 12-volt lead-acid battery to work.
Funds are joining in the lead fun on both the London and Shanghai markets.
Up until the last couple of weeks funds’ main interest in the lead market was to treat it as zinc’s poor cousin, expressed as a relative value trade with lead being sold and zinc being bought.
But that’s changed. Market open interest on the Shanghai Futures Exchange’s (ShFE) lead contract has surged to over 51,132 lots from 34,000 lots in the middle of September. It’s only been higher once before, in August 2014, when it peaked at 54,336 lots.
This build in positioning has been accompanied by a price spike to 15,460 yuan per tonne, the highest level since March 2013, suggesting one of those crowd surges that have become the hallmark of Shanghai metals trading.
Western fund managers are joining in.
Lead is currently exhibiting the largest speculative long positioning among the London Metal Exchange (LME) metals suite, according to broker Marex Spectron.
The money men are joining an increasingly crowded room. The LME’s market positioning reports show one entity controlling between 30 and 40% of available stocks as of the close of business Thursday.
Including cash positions that holding accounts for 50-80% of available stocks.
Time-spreads have been tightening accordingly. The benchmark cash-to-three-months spread flipped into backwardation at once stage last week before closing on Friday valued at a narrow $2.75 contango.
That compares with a $13 contango as recently as mid-August. “Tom-next”, the shortest-dated spread on the LME, has also been trading in persistent backwardation for the first time since May. The exchange’s futures banding report points to a potential showdown looming on the main October prompt date, October 19.
There are two longs facing three shorts.
One of the longs is a big one, accounting for 20-30% of open interest, nearly 72,000 tonnes at the mid point.
One of the shorts is bigger still, accounting for over 40% of open interest, or a minimum 115,000 tonnes.
That’s generated a fair amount of speculation in the London market that the short may be preparing to deliver a significant tonnage of metal into LME warehouses.
That raises the question as to whether lead’s revival is going to be over before it’s really begun. While sister metal zinc has stormed higher this year on the back of mine closures and a tightening supply chain, lead is still in supply surplus, according to the International Lead and Zinc Study Group. But then there is Port Pirie.
Nyrstar’s smelter was knocked out on September 28 by the storm that caused power failures across South Australia.
The blast furnace is currently expected to be down for around 6-10 days for repairs with the exact timing of a full restart still to be confirmed.
The plant is one of the largest outside of China with annual capacity of 185,000 tonnes of refined lead and although it is being repurposed into what Nyrstar calls a polymetallic processing and recycling centre, it remains for now primarily a lead plant.

n Andy Home is a columnist for Reuters. The views expressed are those of the author.