Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Domestic lead battery scrap supply has been very tight in the US market resulting from exports to Asian countries, a warm winter, and the spread of COVID-19. 


The demand for lead batteries comprises 95pc of the approximately 2mn mt lead demand in North America. However, the US automotive battery market—which consists of original equipment (OE) and replacement batteries—has had two major setbacks since late 2019, which have impacted both segments. 


Double impact

A mild winter meant that demand for replacement batteries, which is typically high during that season, was weak and resulted in significantly lower orders for the product, and lower than normal availability of junk batteries. As a result, producers’ and distributors’ inventories were higher than normal when COVID-19-related shutdowns hit the country in March, a spokesperson for Ecobat, North America told Davis Index.


When the pandemic reached the US, dealers were already grappling with high inventory. But automotive shutdowns during that time meant orders for OE batteries collapsed. In the case of replacement batteries, pandemic-related shutdowns led to sharp reductions of orders from retailers and distributors of these batteries. 


According to industry estimates, overall automotive battery production decreased by more than 50pc during March-May, owing to the pandemic-induced shutdowns.


However, the replacement market still fared better than the OE market, which was completely idle for several weeks. New car sales plummeted as consumers replaced batteries in their old rather than buying new ones. The OE sector expressed optimism upon automotive manufacturers reopening their facilities in late May, however, demand, as well as production, remains much lower than last year.


During the shutdowns, scrapyards and domestic recyclers tried to maintain production by processing junk batteries (batteries removed from end-of-life cars sold as scrap), but they, too, began suspending activities amid surging COVID-19 infections. These shutdowns led to scarce junk batteries supply, which drove up their prices. 


Big falls

The shutdowns not only impacted retailers and distribution centers but battery producers too. Exide Technologies filed for bankruptcy during that time as the company’s legacy issues were exacerbated by COVID-19 related shutdowns.


In Germany, Recyclex’s lead processing plant also filed for bankruptcy, and the company recently started negotiations with interested parties to buy the plant and its operations.


In North America, Ecobat’s shipments to customers dropped significantly over the two-month shutdowns. This led to plant shutdowns and employee furloughs at all its three facilities on the continent.


A new threat

Scrapyards were shut down from March to May, and that created a dearth of the material. Tight supply has caused junk batteries prices to rise recently. Economies reopening the world over have also meant Asian importers—some operate in countries where regulations concerning processing and reusing lead from junk batteries aren’t stringent like they are in the US—are willing to pay higher prices to acquire volumes. Moreover, as more scrapyards resume activities, more junk batteries are flooding the market, creating a product glut, which began at the end of May.


Consequently, export prices for these batteries, as well as soft lead scrap such as wheel weights, fabricated lead, and lead cables, have steadily increased since the beginning of June. According to Davis Index estimates, soft lead scrap export prices are nearly 5-10¢/lb higher at 67-70¢/lb fas US port compared to prices for domestic lead scrap, forcing domestic players to compete with importers from South Korea and India willing to pay higher prices. 


Domestic supply relies on lower prices for junk batteries and scrap, especially since processing these materials in the US is more expensive than in many foreign countries because environmental regulations are stricter and much more comprehensive, Ecobat told Davis Index. Consequently, exports are a serious threat to the domestic supply chain. 


Looking ahead

The current surge in export pricing is not likely to last long, most producers and dealers told Davis Index, as a lot depends on developments around COVID-19 and the economic uncertainties spurred by the pandemic. 


The recovery of the domestic replacement batteries market though is a silver lining for the market currently. As the economy began reopening, many drivers discovered their cars would not start after being idle for many weeks. This resulted in a surge of dead batteries delivered to recycling centers from large retailers after consumers replaced their old batteries with new ones, closing the recycling loop in the replacement segment of batteries.


In the short-term, though, domestic batteries scrap prices are expected to remain rangebound at around 32-34¢/lb delivered US consumers, depending on the region. Batteries dealers and manufacturers also anticipate improved demand during the summer, which is another traditionally high-demand season in the market.

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