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Scrap lead battery exports still to be a major issue in 2020: sources

Highlights

LME drop seen easing export-led price pressure

Supply scramble seen lingering in 2020

Washington — Sources in the scrap lead battery market predict an aggressive export market would continue as a major issue in 2020, but some saw a measure of price relief coming early next year.

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Commodities 2020 | S&P Global Platts

They see as a factor a falling LME lead price, which could prompt exporters to lower their bids for the scrap units and take some pressure off domestic smelters to match the high numbers.

"If the LME lead price remains low, can exporters sustain buying at those numbers?" a smelter source said. "At some point they have to do what would make sense economically. It costs them money to get the batteries over there."

Domestic smelters and battery makers say they have increasingly struggled to compete with lofty exporter bids for scrap lead batteries over the past two years, as more exporters have converged on the US market to snap up the scrap units at ever higher prices. South Korea in particular has sharply increased its buying in the US in recent years, sources said. Exporter bids are based on the LME lead price at any given time. LME three-months lead was trading at $1,903/mt Wednesday.

The smelter source noted a recent trend in battery exporting that he said has fed into the export boom. Previously, foreign exporters would only take spent lead batteries if the units were drained, rather than "wet" scrap batteries, he said. That's a rule India, for example, still follows.

But as more countries have gotten in on the export game, he added, exporters "are buying them all, and no one over here is draining them that I know of, so that's going right into a container to ship overseas."

ALL STOCKED UP?

A scrap battery broker, however, said he believed that, as the some exporters have become well-stocked, they are likely to scale back their US buying.

"I think South Korea will be a major player, [but] they are getting full, so while they'll be very competitive, I think they're going to start following more along the lines of what the domestic smelters are doing," he said, meaning export and domestic prices will be more closely aligned.

"They have a lot of supply, so they're not going to have to pay for it," he said, but he added that South Korean exporters will remain as major market players.

"They not going anywhere," he said.

A battery maker source also saw the potential for lower scrap prices in 2020, based on the LME lead price easing.

"If the LME drops, that may help solve the problem," he said. "The supply will always dictate what the [US] smelters have to pay, but if you remove the high-water mark set by the exporters, the whole thing should come down. [Exporters] are the ones that have been dictating the price."

But even if LME price offers some near-term price reprieve, there remains the issue of physical supply, which some said would continue as a headache for smelters scrambling to secure enough volume to keep their plants operating.

LABELING FOR SHIPPING

Another smelter source said that, as long as certain factors remain entrenched in the system, significant volumes of scrap batteries will continue to flow out of the country.

"The only way this material is getting out of the country is by being mislabeled. ... That's the way the [exporters] get around the higher freights."

He noted that, if scrap lead batteries were specifically labeled, they would be categorized as "hazardous waste," with the attendant higher freight costs. Moreover, "a lot of the vessel lines don't want to ship lead batteries," he noted, but the scrap units are slipping through undetected under more generalized labeling, as, for example, "scrap metal."

"Our margins are squeezed big time," he said. "It doesn't matter what the lead or scrap price is; [exporters] are at a huge advantage because they're not paying legitimate freight."

As an example, scrap battery prices in the US Northeast -- a region hard hit by exports -- spiked to 43-44 cents, picked up, in mid-2017 from an average 30-35 cents for full-year 2016, S&P Platts historical data showed. Northeast prices are currently in a range of 36-37 cents.

"Smelters can't afford to pay what the exporters are paying," the source said.

WEAKER ENVIRONMENTAL RULES

A second big cost advantage for the exporters, the smelter source added, is the fact that some of the exporting countries have far less stringent environmental regulations for shipping and processing scrap lead batteries, so they have bigger budgets for acquiring the scrap units.

"As long as current conditions remain the same ... nothing's going to change," he said. "Everybody's just paying less to bid for the same batteries."

But another cost issue emerging in 2020 is likely to affect all market players, in the US and abroad, the smelter source added.

"Vessel lines are facing new environmental regulations, so their costs will rise ... after the first of the year," he said. "I don't think the vessel lines are going to eat that freight. I think they're going to pass some of it on to importers and exporters."

Still, he speculated that the higher freight rates are unlikely to slow the exporters much and predicted only a "slight impact" on export volumes from the US.

But will 2020 be the year of a major industry pushback on the export issue?

Sources weren't so sure.

"I don't know how much traction [industry groups] are going to get to stop the exporting of spent batteries," the battery maker source said.

"I don't think much, if anything, has been done," one of the smelter sources said.

Commodities 2020 | S&P Global Platts

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

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

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