In 2024, battery scrap prices hit a record high. How do secondary lead smelters' raw material inventories compare to previous years? [SMM Analysis]

As a crucial raw material for secondary lead smelting, the supply of battery scrap is highly sensitive for enterprises. In recent years, with the increasingly evident overcapacity in secondary lead production, the supply tightness of scrap has also intensified. In 2024, the tax-inclusive price of e-bike lead-acid battery scrap reached a historical high of 12,200 yuan/mt. Under such high cost pressure, how have the raw material inventories of secondary lead smelting enterprises changed compared to previous years?

In 2022, enterprises' raw material inventories remained relatively stable throughout the year, with higher levels only at the beginning and end of the year, related to pre-Chinese New Year stocking and post-holiday replenishment. Additionally, the lifting of pandemic restrictions at the end of 2022 meant that the public was still in a recovery phase entering 2023. Considering market conditions and employee health, the operating rate of secondary lead smelters dropped significantly, slowing down the consumption of raw materials. This was one of the reasons why raw material inventories approached 300,000 mt at the beginning of 2023.

With the decline in the operating rate of lead ingots, supply became slightly tight, and the profitability of secondary lead improved, boosting production willingness in April, leading to a decline in raw material inventories. The operating rate remained relatively stable mid-year. Entering H2 2023, especially after November, the off-season for lead-acid batteries combined with environmental protection-related controls due to northern smog and low temperatures affecting furnace temperatures, significantly reduced the operating rate of secondary lead smelters. Simultaneously, the retirement of battery scrap was low, and smelters, under operational pressure, were less willing to stockpile raw materials, resulting in significantly low raw material inventories for secondary lead smelting enterprises in December 2023. (Note: The SMM weekly dynamic battery scrap index averages the historical weekly raw material inventory days to observe the tightness of smelters' weekly raw material inventories.)

Entering 2024, a series of recycling-related policies had a significant impact on the supply and demand of the battery scrap market. After the "reverse invoicing" policy was announced in April, most traders in the recycling market stopped purchasing. Tightening supply and increasing tax costs put significant pressure on smelters' raw material procurement, leading to poor inventories. The days of raw material inventories for secondary lead enterprises in H1 2024 were consistently below the average level.

In July-August, the "Fair Competition Review Regulations" gradually took effect, and the suspension of local tax incentives increased cost pressures on secondary lead smelting enterprises. Smelters countered the increased costs by lowering procurement prices, causing the price trend of battery scrap to weaken, and recyclers, fearing price drops, sold off their stock. Raw material inventories improved in H2, generally exceeding the average level. Although the supply situation in the raw material market improved, recyclers' habitual reluctance to sell in anticipation of price increases often forced smelters to raise prices to replenish low inventories. This means that the trend of easily rising but hard-to-fall battery scrap prices will continue, and the raw material inventories of secondary lead smelting enterprises will remain at or below the average level for a long time.