Farid Ahmed, CTO & CCO for Zero Carbon Technologies, discusses issues affecting profitability of the lead recycling industry in the US.
There are plenty of global events competing for news headlines at the moment: geopolitical turmoil; trade disputes; military and ideological conflicts – the list is long. None of these problems exist in isolation and the interplay between them reminds us that actions in one area have ramifications in others. These issues also impact the lead recycling and battery industries, reinforcing that our sector is also prone to suffer the slings and arrows of outrageous fortune, as a far better writer than me once put it.
The US lead recycling industry
One particular issue that has me somewhat perplexed right now is the state of the US lead recycling industry. Why has it been increasingly struggling to be profitable for approaching a year now? These are the facts. Feedstock prices are, in historical terms, quite low. At the time of writing, scrap batteries are 31-33¢/lb ($685-730/t). Premium levels are healthy, up around 22-24¢/lb ($485-530/t). Tolling fees went up a good chunk since last year and, for many, have surged well past 50¢/lb ($1100/t).
Tolling contracts
Indeed, tolling contracts are at the highest level I’ve ever known them. Tolling is, essentially, where a lead recycler supplies a battery maker with refined lead and lead alloys in exchange for scrap feed and cash – which currently is more than the aforementioned 50¢/lb. These fees are over two-thirds higher than they were just a few years ago. This practice accounts for 75-80% of lead transactions in the US, rather than standard contract lead supply without any scrap feed involved as part of the deal. Therefore, the higher tolling cost is going to disproportionately hurt the battery-makers as most of their lead is obtained in this way.
The commodity price
The commodity price of lead has failed to generate any excitement for a long time. Since the start of last year, the London Metal Exchange price for lead – the global price-setting exchange – has averaged $1,960/t. In those 15 months it has deviated little, with a brief excursion down to a low of $1,820/t and a fleeting climb up to the not-exactly-heady-heights of $2,081/t. During this period, US prices for natural gas – the key energy source for lead smelting – have been in general decline, despite spikes last November/December and more recently in January/February.
So why are US lead recyclers feeling the pinch? And how long is this painful state-of-affairs likely to continue?
The battery kill season
Winter is traditionally ‘battery kill season’. The US is just emerging from a generally mild winter, although there were some short snowy surprises as far south as Texas and Florida. This less-harsh weather failed to kill off as many batteries as would typically be expected, reducing the demand for replacement units. But this, in turn, also curtailed the supply of feed for recycling. And still, scrap prices remain low.
High inventories
There was a huge volume of new batteries imported into the US prior to the anticipated import tariffs coming into force last year. Inventories of these units remain higher than expected due to the softer replacement battery demand, thereby bruising both the domestic lead and battery industries.
Refined lead premium
The premium on refined lead is currently around two-thirds higher than historical long-term levels for US domestic production of recycled lead. The main driver for that is Trump’s imposition of high import tariffs on many of the main exporters of refined lead into the US. This could typically equate to an additional 15¢/lb ($330/t) on top of the normal premium for imported primary lead from producers across the Pacific.
Domestic lead price
US domestic refined lead is normally a couple of cents per pound cheaper than imported material. So why would homegrown producers not take advantage of this opportunity to push their premia to just below the inflated levels of foreign lead? Up to, let’s see… how about a couple of cents per pound below the imported stuff? It’s still a cheaper lead purchase for the US battery-makers, who’ll just have to get over their sense of injustice and feeling of predation if they want to acquire that lead.
The tariff effect
But let us not forget that it is the importer of the product, not the exporter, who pays the tariff. In this case, it means it’s the battery producer and, in turn, the retail customer who is putting their hand in their pocket to pay the additional dollars, whether that battery contains US or foreign lead.
Critical mineral status
It was hoped that lead’s listing as a critical mineral by the US Geological Survey last November would help stem the haemorrhaging of scrap batteries out of the US and, indeed, out of the USMCA free-trade region. However, trade statistics show that it has had no discernible impact and that the flow of US scrap lead batteries, to Korea and India especially, continues in bulk. This serves to deplete the availability of feedstock to US recyclers. And still, scrap prices remain low.
The cost of shipping
The more likely reason for this scrap outflow to be pinched off is rising shipping prices in the wake of the seaborne transport chaos arising from the conflict in Iran, more than industrial and political pressure which, so far, has been somewhat ineffectual. One consequence of this could be that the US lead recycling capacity is swiftly maxed out when junk batteries are no longer leaving their shores.
Recycling innovation
The most realistic route to success for the lead industry will be through innovation – something this sector struggles with. The European market is far better balanced than the US and so is less affected by the same problems, but it cannot afford to ignore these same issues. In North America and Europe, the opportunity to ‘just build more smelters’ is not going to present itself. Instead, other cleaner, more sustainable, lower cost and novel methods must be adopted. That’s how you’re going to get an increase in capacity. There are technologies out there to achieve this. Some are ready now for commercial deployment, some still need a bit of incubating. But all viable alternatives should be embraced.
Finally, my thanks go to James Griffiths at CRU for helping me get my thoughts straight about these matters – a top fellow with whom to discuss all things lead.
