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Increasingly high concentration ratios are a common outcome in the development of an industry. China has proactive sought this in its reorganization of the lead-acid battery industry, shutting down more than 80% of all producers and freeing up considerable market share in the process. This has naturally led to the larger, surviving enterprises actively competing to expand capacity, vying for market share and driving yet further concentration in the battery industry. This is an example of a confluence of both market forces and government policies.
The production and processing of lead-acid batteries can easily be polluting. Safe, clean production requires high-end facilities and robust environmental protection measures. This can place considerable cost pressure on SMEs. As such, the rising concentration of production in China’s battery industry is almost a necessity for realizing the government’s goal of sustainable development in the industry.
Lead-acid batteries, classed as a renewable energy product, proffer numerous advantages including safety, low costs, and wide application. Xu Hong, secretary of the Lead-Acid Battery Division of the China Electrical Equipment Industry Association, highlighted three key points pertaining to the demand for lead-acid batteries.
First, the demand for automobiles is expected to hit 45 billion during the 12th Five Year Plan. Other transportation equipment, including forklifts and golf carts, are expected to generate as much as additional RMB 5 billion in sales.
Second, China’s electric vehicle sector is growing rapidly and has become a major source of growth for the lead-acid battery industry over the last ten years.
Finally, the development of all-electric cars represents an as-yet unquantified new opportunity for growth in the battery industry.
Overall demand for lead-acid batteries remains sound. The current weakness in the market is temporary while oversupply remains at least partially an artifact of China’s economic slowdown.
Some reports have put forward the claim that China’s lead-acid battery industry is mired in a vicious circle of unprofitability as overcapacity and price wars intensify among leading battery enterprises. SMM holds the view that the price cuts are a natural response to the market and that it is perfectly understandable that backbone enterprises have lowered prices against flagging demand and are sure to raise them again when demand picks up.
Wang Jingzhong, Vice President of the China Battery Industry Association, has indicated that consolidation in the lead-acid battery industry should continue and that the number of battery producers will likely contract to around 300. As market share is increasingly freed up by the exit of some producers, larger producers are expected to continue to expand to fill the gap.
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