Soaring battery prices "devastating" U.S. lead producers

Thu Apr 5, 2012 4:25pm EDT

Related Topics

* Mild winter causing shortage of battery supplies

* Secondary smelters' margins squeezed by soaring raw material prices

* Junk prices up near all-time peaks

By Chris Kelly

NEW YORK, April 5 (Reuters) - Secondary lead smelters are paying near record prices for junk batteries, their raw material feed, because drivers are not replacing their car batteries due to the unseasonably warmer winter in the Northern Hemisphere.

The price rise has been driven by a scarcity of spent batteries, used to make 90 percent of the United States' lead output. Lead-acid batteries in cars and trucks are lasting longer due to the milder weather.

Battery demand tends to pick up in the colder months when batteries, which account for nearly 80 percent of lead demand, typically seize up from winter's chill.

That in turn increases supply of used batteries, which are drained, cleaned and returned to the secondary smelters which use them to make lead.

But this year's temperate winter has curbed that replacement demand, and with it, the amount of batteries feeding back into the supply chain. This is forcing secondary smelters to fork out ever-higher prices to secure raw material.

"As recyclers, we depend on the seasons to generate the product that we need," one battery recycler said.

"This year we are seeing such a slack in the number of batteries coming through the salvage end that it is absolutely devastating to the industry. It's driving the price up to where nobody is going to make any money on it at all."

Secondary producers' profit margins are being squeezed as they struggle to pass on the higher costs to their customers in the automotive industry.

"They can hardly afford to run their smelters right now," said the battery recycler.

"They are trying to pass on these costs with premiums, but right now none of them are operating at 100 percent capacity. If you're not operating at 100 percent capacity, you're not making any money."

Junk batteries were quoted in a range of 40 to 45 cents per lb this week, their priciest levels since 2009 when weather-related demand growth helped power prices into record territory in the mid to upper 40-cent range, market participants said.

This compares with around 35 cents a year ago, according to a scrap dealer.

"Everyone wants to keep their smelters running full steam, so in order to do that they are paying higher prices than they should be. Junks are pushing some all-time high levels just in the last 30 days ... we're in the 40 to 45 cent range, picked up," one battery maker said.

The scrap dealer said he was shipping lead-acid batteries at 42.5 cents, but at a lower load rate compared with prior years.

"There was a time when I was doing ten loads a week. Now I am doing three loads a week ... to Exide, RSR Corp. and Newalta up in Canada. They are buying like crazy," he said.

According to the most-recent data from the Battery Council International (BCI), North American shipments of replacement automotive batteries fell 11.17 percent in January from December, and slid 10.78 percent from January 2011.

"Right now the market is just slow, and one of the reasons it is slow is because the replacement batteries are not being replaced," said a physical lead trader.

But just as the warmer winter weather has created a shortage of battery supplies at the start of the year, a hotter summer could swing the market back into a surplus just as fast, he said.

"If all of a sudden we get into July and its 110 degrees from Texas through Illinois, we're going to get replacement batteries out the whazoo," he said, expecting a hotter summer to pull secondary prices back down below the 40-cent level.

Some 90 percent of the 1.296 million tonnes of lead output in the United States is made from secondary feed, according to the International Lead and Zinc Study Group (ILZSG).

Doe Run operates the only primary smelter in Herculaneum, Missouri, which is down for repairs until May following a fire in March. (Reporting By Chris Kelly; Editing by David Gregorio)

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