SHANGHAI, Jul. 23 (SMM) – An SMM survey of 91 major domestic lead-acid battery producers and seven pole plate processors revealed the following insights:
1) Operating Rate at Lead-Acid Battery Enterprises Edges Up in June
SMM’s survey indicated the average operating rate at major domestic lead-acid battery producers inched up by 1.4 percentage points to 64.32% during June, due mainly to the onset of the peak demand season for motive lead-acid batteries. However, many enterprises reported orders have yet not improved over last year’s levels.
The 4.73% MoM growth at motive battery producers contributed most to the higher monthly average since operating rates at motive battery producers rose to 63.52%, the first time since February. During February, the rate had risen due to the resumption of operations following the Chinese New Year holiday. Last month’s increase was due, however, to improved downstream demand. Motive battery producers are still cautious since February’s average rate was above 70% and since the seasonal high demand period for lead-acid batteries has come later than normal this year, with no increase in demand for batteries experienced until late June. With the arrival of the high demand season for electric vehicles, prices for motive batteries should rise, but enterprises so far have shown no intention of raising battery prices since demand is still weak, even following massive price cuts during April.
The average operating rate at ignition lead-acid battery producers was up 1.7% from May. According to data from the China Association of Automobile Manufacturers, China’s automobile output in June was down 2.37% MoM, to 1.53 million vehicles, and motorcycle output was fell 3.17% MoM, to 2.01 million vehicles. Although output at ignition battery producers was down, operating rates were still stable due to demand from high penetration of automobile and motorcycle ownership in China.
Operating rates at backup battery producers fell slightly during June by 1.8%, a reflection of lower orders for backup batteries.
2) Weak Demand and Falling Lead Prices Keep Battery Prices Low
Rumors about price increase for motive lead-acid batteries have recently spread through markets, with enterprises in Shandong and Zhejiang provinces were believed to be raising battery prices by RMB 5 per unit. However, SMM’s survey indicated that no enterprises other than Chaowei Power had raised battery prices.
Similar rumors had been heard in markets at the beginning of June when the Lead-Acid Battery Industry Entrance Requirements were announced with an effective date of July 1st. A large number of enterprises failing to meet these new requirements were believed to be closed, causing battery supply to tighten. These rumors, however, turned out to be false.
A month later, the rumor circulated again with Chaowei Power raising its battery prices slightly in early July, and since Chaowei Power is one of the leading battery producers in China, any increase would be significant. Most motive battery producers indicated they would raise prices during this high demand season after experiencing several months of soft demand, but they did not follow through with this plan for two reasons.
First, downstream demand remains weak. According to SMM’s survey, only a few enterprises reported improvements in orders despite the high demand season for motive batteries. Most enterprises still reported only limited orders and some enterprises were still depleting existing finished goods inventories. Second, prices for lead ingots, the raw material for batteries, remain low. The average lead price has been falling from RMB 15,800/mt in February to RMB 15,000/mt during June. Since the cost of lead ingots makes up 75% of the total cost for producing lead-acid batteries, slumping lead prices significantly lowered production costs, eliminating the need to raise battery prices.