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Foreign exporters reach into US scrap battery market, pushing up prices: sources

Washington — Sources in the scrap lead battery market attribute a recent surge in the scrap units' pricing to an increasing number of foreign exporters grabbing up the material from the US market, forcing domestic buyers to scramble to match escalating bids.

"It's a huge number that's being exported," an industry source said, estimating the yearly volumes of scrap batteries leaving the US bound for South Korea alone in the "hundreds of thousands of tons" per year.

"It's hurting not only the smelters, but battery manufacturers are getting killed, too," he said.

Sources say that, beginning about two years ago, there was a marked increase in exported scrap batteries -- with South Korea increasingly an export player -- and that's when the scramble for enough of the scrap units intensified.

A major factor behind the spike in exports, according to some sources, was the fact that, about two years ago, Japan -- a former major supplier of lead scrap to South Korea -- shut off the flow of Japanese-origin lead scrap to South Korea, citing environmental concerns. To fill that scrap shortfall, South Korea turned to the US.

While the Asian country had long brought in US-made scrap batteries, one source said, "It has increased year after year to the point that it is a substantial volume every month."

Around the time Japan changed its policy, the industry source said, "We noticed a bigger increase, and then this year, annualized, it's a tremendous increase."

SUPPLY SQUEEZE EMERGES

A source with a US smelter said he began to notice a gradual squeeze in supply roughly two years ago, a trend he also attributed to the flurry of export buying, mostly by South Korea.

A trader source said he believed the number of individual companies getting in on the export game has been increasing, too. But he said the volume of scrap lead batteries exported from the US has remained fairly consistent in the last year or two.

In any event, while sources point to a strong connection between a brisk export market and higher scrap battery prices, the prices of the scrap units have zigzagged over the past couple of years, the period when sources say the US became the export market of choice.

For example, in the US Northeast, the region reportedly hardest hit by exports, S&P Platts historical data show scrap-battery prices surged to as high as the 43-44 cents range by June 2017 from average prices in the 30-35 cents range for full-year 2016. Prices stayed elevated into 2018 -- hitting 44-45.5 cents by February -- but gradually began to ease throughout that year and were back to 32-33 cents by December 2018. Prices were back on the rise this year, gradually trending toward the current 36-38 cents.

Similarly, Midwest prices had spiked to 42-44 cents by August 2017 from a range of 29-35 cents for full-year 2016. Midwest prices maintained those levels into 2018 -- reaching 43-55 cents in February -- but had softened in the ensuing months to bottom out at 29.5-30 cents by December 2018. Midwest prices also began to climb this year to the current 34-35.5 cents.

ENVIRONMENTAL COMPONENT

Not only is the export trend hurting domestic companies' financial bottom lines, but there's an environmental component as well, the industry source said.

Some sources claim countries including South Korea are lagging behind on environmentally safe practices for the processing and recycling of scrap lead batteries. Battery exporters with no rigorous regulations for handling lead scrap also include some Central American countries.

"They're going to places they shouldn't be going to," the industry source said. The more lax regulations in some of the export countries, the source said, means exporters in those countries don't have to spend on tighter environmental controls and thus can afford to pay top dollar for scrap batteries in the US.

"It's a very, very uneven playing field," the industry source said.

Adding to the problem is the lack of reliable statistics on scrap lead batteries exported from the US, due to a number of factors, including that scrap exports tend to get labeled generally as "scrap metals " rather than specifically as scrap lead batteries, he said. Such nonspecific labeling works in the exporters' favor, the source added, because shipments labeled as scrap lead batteries would face among other things, higher freight costs and fewer shipping companies willing to ship "wet," or non-drained, lead batteries, he said.

MEXICO AHEAD, BUT SOUTH KOREA SURGING

According to data from the International Trade Commission, Mexico was the bigger exporter from the US of the scrap-battery category, "lead-acid storage batteries, of a kind used for starting engines," compared with South Korea in the last three years, although South Korea has shown a sharp increase during that time.

The data showed that, in 2019 year to date, Mexico exported in actual dollars, $237.1 million in the above-noted category, versus South Korea at $29.3 million. In 2018, Mexico exported $390.7 million, compared with South Korea's $17.9 million, the data showed. In 2017, Mexico exported $293.6 million, with South Korea at $3.4 million, and in 2016, Mexico was at $206.6 million, with South Korea at just $198,374.

South Korean trade officials didn't respond to a request for their nation's export statistics.

Another issue in accurately tracking exports is simply a lack of resources.

"There's a gazillion containers," the industry source said, and if the manifest says scrap metal, they're not going to open up every container." US customs inspectors focus mainly on what is coming into the country, he said, such as illegal drugs. Also, broker-to-broker export deals are harder to trace, he added.

Kelly Cahalan, a spokeswoman for US Customs and Border Protection, told S&P Global Platts, "While we do inspect outbound exports -- it is not as robust as import inspections."

The industry source said he was uncertain over a resolution, if any, to the tracking issue, or whether it might ultimately come down to an industry push for a Japan-style government intervention in the US.

In any case, he said, "It's going to take one of the big boys in the industry to wave the flag and say enough is enough."

-- Laura Gilcrest, laura.gilcrest@spglobal.com

-- Edited by Bill Montgomery, newsdesk@spglobal.com