2011’s environmental protection crackdowns forced a general shake-out across China’s lead-acid battery industry. China’s battery enterprises are not only struggling for survival, but also facing challenges from clean production, technology upgrade and reorganization.
The Ministry of Environmental Protection (MEP) released results of the environmental protection inspections last year:
As of July 31, 2011, a total of 1,930 enterprises were inspected, including lead-acid battery producers, assemblers and recyclers. Of these, 583 were permanently shuttered; 405 were closed for renovation and remediation, 610 halted production, leaving only 252 in operation. The remaining 80 were adding new capacities.
As of November 30, a total of 1,961 battery enterprises have been inspected. There are 779 registered lead-acid battery producers, assemblers and battery recyclers in 14 provinces which have released results of the inspections. Of them, 107 enterprises are permitted to continue production, accounting for 13.74% of the enterprises listed in the results.
◆Battery Prices Rise on Supply Shortfalls After Environmental Protections Inspection
Over 70% Motive Battery Producers Halt Production in May
According to an SMM survey in May 2011, over 70% domestic motive lead-acid battery producers suspended production during May due to the influence of environmental protection crackdowns.
Battery Supply Falls Short, Electric Vehicle Prices Increase
Continuous production halts at lead-acid battery enterprises have led to tighter battery supply. In July 2011, some enterprises have raised prices for lead-acid batteries, and in turn, affected the end consumers. In response, electric vehicle prices rose accordingly. Most SMEs initially lifted prices of batteries, followed by large producers with prices up around 10%. The prices and supply of lead-acid batteries were largely influenced by the resumption time of battery enterprises and the number of enterprises resumed.
Some market players reflected goods were limited even at high prices.
Ignition Battery Producers Benefit from Environmental Protections Inspections
With large amounts of enterprises closing in the environmental protection inspections, demand for ignition lead-acid batteries, particularly automobile batteries, remained relatively strong and outstripped supply during the traditional offseason. As such, many enterprises were not able to fulfill all orders even operated at maximum capacities.
◆Evolution of the Battery Industry Following Crackdowns – Survival of the Fittest
(Late 2011 to the present)
Keywords: Mass production, Expansion, M & A
Larger Enterprises Survived
Industry insiders reflected the environmental protections inspections mainly focused on SMEs with lower capacity, heavier pollution and less standardized production processes. Given the tendency of consolidation in battery industry, larger lead-acid battery enterprises in compliance with environmental protection and production requirements should benefit from the inspections. Among the list of the remaining enterprises, those with annual capacities exceeding 500,000 kvah were less affected.
SMM believes that economies and efficiencies of scale as well as clean production capabilities will define development in the lead-acid battery industry and that the advantages of large producers will become ever more pronounced.
Remaining Leading Enterprises Active in Expansion
Lead-acid battery supply fell short due to abated output after the environmental protection inspections. In contrast, demand downstream remained steady growth, leaving orders concentrating in large enterprises allowed to continue production. Thus, efficiencies of scale became evident in the industry. These large enterprises were actively expanding capacities so as to gain larger market share and achieve higher profits.
Last December, SMM was informed that 12 companies, including Chaowei Power, Fengfan Storage Battery, and Johnson Controls, planned to built new capacity or expand existing capacity to increase market share.
Lead Consumption for Battery Production to Increases
Yao Lingchun, Deputy Secretary of China Battery Industry Association and Secretary General of Zhejiang Battery Industry Association, pointed out that the rigid demand for lead-acid battery will not be suppressed due to the inspections, because there is no substitute for it at the moment. Thus, the lead consumption for battery production should increase further with leading enterprises expanding persistently.
The increased output at large lead-acid battery enterprises which survived in the environmental protection inspections, especially listed companies including Tianneng Power, Chaowei Power and Sacred Sun Power Sources, should offset the cut in output during the inspections. Yao further explained that China’s lead-acid battery industry is advancing at an annual growth of 25% with promising prospects, so the lead consumption within the industry shall be promoted accordingly.
◆Change of Distribution of Lead-Acid Battery Producers
(Mid-2011 to the present)
Keywords: Relocation, Enterprise Distribution
Relocation of Enterprises of Zhejiang Province
By late July last year, only 25 lead-acid battery enterprises in Zhejiang province were allowed to resume production, while most enterprises had to relocate or close down and shift into other sectors. In this context, inland areas became an attractive choice for relocation of lead-acid producers. Some enterprises were considering or have already moved to Jiangxi, Anhui, Hebei or northern part of Jiangsu. Besides, Hubei, Henan, Guizhou, and Inner Mongolia were also considered suitable. The industrial parks or new-energy districts which hosted a concentration of battery producers will be new sites of enterprises originally situated in Zhejiang.
Distribution of Lead-Acid Battery Producers to Change
Despite various reasons, signs indicated that China’s distribution of lead-acid battery enterprises will experience significant change. Enterprises along the coastal regions, such as Guangdong, Zhejiang, and Fujian, were shifting toward Central and West China due mainly to the following reasons:
1. Safety exclusion zone is mandatory requirement. Achieving safety exclusion zone by simply relocating either enterprises or residents to other areas within the coastal provinces is far from feasible.
2. Given the giant leap of economic development in Zhejiang, Guangdong and Fujian, these regions are not as desirable for GDP growth as earlier, and began to impose certain restrictions on industries causing heavy pollution. Therefore, it was understandable lead-acid battery producers intended to relocate.
3. The concentration of lead-acid battery producers in coastal regions lifted risk of pollution, so the relocation will help realize reasonable distribution of enterprises and lower pollution risks.
4. Large lead-acid battery enterprises were encouraged by local authorities to move to suburban areas.
Relocation of Lead-Acid Battery Producers Should Keep Pollution Away
Lead-acid battery producers have been relocating en masse since last year’s environmental protection crackdowns. Many SMEs have relocated to central China or have moved into specially designated regional industrial parks. SMEs in Zhejiang, which hosts a large concentration of lead-acid battery producers, have started relocating.
Some are moving into local development zones or industrial parks, but some SMEs are unable to meet entry requirements for these zones. In Shandong, only enterprises exceeding RMB 500 million in output value can move in. The requirements are even stricter in Zhejiang and Jiangsu. Many others are thus heading towards Jiangxi, Hunan and other central provinces, hoping not only to escape rigorous inspections, but also to benefit from proximity to lead producing areas.
As the lead-acid battery industry has come under increasing scrutiny, enterprises will no longer be able to evade inspections or audits by simply relocating. Social responsibility is now the precondition for success. Further development will only be possible for those enterprises that are responsible and dispose of their pollutants before relocating.
◆Environmental Protection Regulation Will Be A Long Process
Environmental Protection Regulation May Last Long
The environmental protection regulation on lead-acid battery industry should follow a long-term process. The pollution within battery industry will not be settled at one stroke, according to Yao Lingchuan. Besides, SMM sources also confirmed that most producers seemed to be well-prepared for the durable fight against pollution. Many small enterprises simply gave up the current business in the face of the daunting entrance requirements and slim hope for resumption, which certainly led to massive M & A in battery industry so as to enhance the production expansion of remaining enterprises.
Lead-Acid Battery Industry to Step on A New Stage
The backward capacity elimination caused by the environmental protection crackdowns starting last July will bring lead-acid battery industry to a new developing level. Thus, the industry will get rid of the original production which focused only on capacity expansion, profits and achievements, regardless of environmental protection, safety and sustainability. The stringent requirements and significant influence of the crackdowns on lead-acid battery industry attracted widespread attention and should be instructive to the development of other industries.
Lead-Acid Battery Industry to Be Rebranded
The frequent reports of lead poisoning incidents have aroused public concerns. Since over 80% of some 2,000 lead-acid battery enterprises were closed during the inspections, lead-acid battery industry was treated as a major polluting industry.
The MEP has launched a “shock” overhaul of the lead-acid battery industry, clamping down on enterprises causing lead pollution, but also bringing temporary pains across the industry. It is widely accepted that pollution is not inherent in an industry, instead, it can be controlled by enterprises. Given the broad application of lead-acid batteries, the industry should rebranded by cutting the pollution caused by battery enterprises.