Lead lifted by storm boost for batteries As the lights went out across New York two weeks ago, a small group of commodities investors started rubbing their hands in anticipation. For investors betting on higher lead prices, Hurricane Sandy was the final piece of an increasingly bullish story. The metal, long the focus of alchemists" attempts to turn base metals into gold, has in recent months caught the attention of metals traders and hedge funds with similar dreams. "Lead is the only metal left with a bit of a story that is getting people interested," says Leon Westgate, analyst at Standard Bank in London. There's no real story in copper, aluminium, zinc or nickel, but lead is now starting to get a bit of momentum. The heavy, toxic metal - most of which is now used to make batteries, which have been in heavy demand on the US east coast - has risen 24 per cent since a low in late June, beating the London Metal Exchange's basket of metals by 20 percentage points. The LME, where benchmark lead futures are traded, does not release comprehensive data on investor or trader positioning. But the number of contracts outstanding, called "open interest," has risen by almost 40 per cent since early September to hit a record high on Friday, which analysts say implies hefty bets from hedge funds and other speculative traders. "There has been quite a lot of interest in the lead market," says Duncan Hobbs of Macquarie. The Australian investment bank found in a recent survey that lead was its clients" second favourite bullish bet among base metals after copper. Lead has for years kept a low profile. It is usually mined as a byproduct, meaning it has little appeal to the mining industry and the bankers and analysts who follow it. The lead market is small, and much of it is self-contained within China. Yet a confluence of bullish factors has made lead the flavour of the moment. First, lead demand tends to be relatively "recession proof" compared with other industrial metals. Car batteries, which account for almost half of global lead use, must be replaced when they fail regardless of the state of the economy. Wood Mackenzie, a leading commodities consultancy, told investors at a recent presentation in LME week that it expected 4.5 per cent growth in lead consumption this year, against 1.9 per cent for copper and 1.8 per cent for steel. More importantly, however, the market is suffering a shortage of scrap batteries. The opaque scrap trade plays an important role in the lead market, accounting for well over half of refined lead production. The problem is that last winter was not cold enough. That meant fewer car batteries failed, and so supplies of scrap lead were lower. The shortage has been reflected in the price of scrap batteries, which have this year hit a record high relative to the price of refined lead. Yves Roche, chief executive of Recylex, one of Europe's top metal recycling groups, said at the company's quarterly results last week that the cost of scrap batteries remained "at a very high level." An executive at a leading scrap merchant adds: "Local consumers everywhere are paying whatever it takes to retain scrap locally." At the same time, demand for lead is also picking up. The upgrade of mobile phone networks around the world will require significant purchases of large, stationary batteries used to back up phone masts, according to Helen Matthews, senior lead analyst at Wood Mackenzie. "A lot of the bandwidth auctions for 3G and 4G have already been done; this money has to be spent despite prevailing economic conditions," she says. Finally, Hurricane Sandy has given the market a small but significant boost, executives and analysts say. "This week we are getting word that there is an increased need for reserve power batteries for telecommunication, cable, data centres and other applications where reserve power is needed," says Jose Hansen, vice-president of sales and marketing at Doe Run, one of the world's largest lead producers. When we think about all the large companies in New York City who have their battery banks below ground, it's easy to understand they need to be replaced as a result of flooding. Ms Matthews of Wood Mackenzie estimates that the effect of the hurricane could lift US lead demand by 3-4 per cent, on top of the growth of roughly 5 per cent already forecast for this year. Nonetheless, not everyone is convinced. Inventories of lead in LME warehouses are high by historical standards - although much of the metal is tied up in logistical bottlenecks. And some are wary that the unbridled enthusiasm from the investment community could end in tears. "While fundamentally the lead market still looks in reasonably good shape, positioning is quite long," says Mr Hobbs of Macquarie. Opinion is polarised.