How did the cost of secondary lead enterprises change after the implementation of policies such as "reverse invoicing"? [SMM Analysis]

On April 25, 2024, the State Administration of Taxation issued the "Announcement on Matters Related to 'Reverse Invoicing' by Resource Recycling Enterprises to Natural Persons Selling Scrap Products" (hereinafter referred to as the "Announcement"). From April 29, 2024, natural persons selling scrap products (hereinafter referred to as sellers) to resource recycling enterprises can be invoiced by qualified resource recycling enterprises. Regarding taxation, the "Announcement" states that sellers who sell scrap products through "reverse invoicing" can enjoy tax incentives such as VAT exemption for monthly sales below 100,000 yuan for small-scale taxpayers and a reduced VAT rate of 1% from the standard 3%. Sellers who sell scrap products through "reverse invoicing" must prepay personal income tax at 0.5% of the sales amount. This policy has attracted significant attention from the recycling industry. Waste lead-acid batteries, classified as hazardous waste generated during social production and consumption, are primarily collected by individual businesses or natural persons, who must comply with this policy during sales.

In the initial phase of the policy announcement, most battery scrap traders in the waste lead-acid battery market ceased trading, with some even exiting the market. This led to a short-term raw material shortage for secondary lead smelters, causing a rapid increase in battery scrap prices. As the market gradually understood the policy, traders resumed transactions. However, the taxes incurred during operations directly increased battery scrap prices, with secondary lead smelters indirectly bearing these costs, leading to a sharp rise in production costs.

Battery scrap prices remained strong, with the tax-inclusive price of e-bike lead-acid battery scrap reaching a historical high of 12,200 yuan/mt in late July, pushing lead prices upward. Despite spot lead prices nearing 20,000 yuan/mt at that time, SMM data showed that small and medium-sized secondary lead enterprises had a per-ton loss of around 400 yuan/mt on July 24. Additionally, before the policy announcement, the tax rate for tax-inclusive battery scrap purchased by secondary lead smelters in regions like Anhui and Jiangxi ranged from 1.8% to 2.5%. After the policy implementation, the tax rate increased to 3% to 3.5%. The price spread between tax-inclusive and tax-exclusive battery scrap widened, with the spread for e-bike lead-acid battery scrap expanding from around 150 yuan/mt to approximately 350 yuan/mt.

On June 13, 2024, the State Council issued the "Fair Competition Review Regulations" (hereinafter referred to as the "Regulations"), effective from August 1, 2024. Article 10 states that without legal or administrative regulation basis or State Council approval, specific operators cannot be granted tax incentives, selective or differentiated financial rewards or subsidies, nor can they be given preferential treatment in areas such as factor acquisition, administrative fees, or government funds. In the green recycling industry, tax incentives are relatively common. The dismantling and recycling of waste lead-acid batteries to smelt secondary lead is a typical example of metal recycling. Most local governments encourage related enterprises by providing certain tax incentives or reward mechanisms, but there are regional differences.

Some regions reported that they had not previously enjoyed local tax rebate policies or had long ceased to enjoy such benefits. Representative smelters in Zhejiang, Anhui, and Shandong stated that they had received verbal notifications from local governments about the cancellation of tax rebates. Without local tax incentives, production costs for smelters would still increase. Therefore, after the news of suspended tax incentives spread, secondary lead smelters intended to lower battery scrap purchase prices to offset the anticipated cost increase. Entering October, influenced by macro sentiment and fundamentals, lead prices hovered around 16,500 yuan/mt, with e-bike lead-acid battery scrap prices fluctuating around the 10,000 yuan mark. Secondary lead smelting costs remained high, and the market was still observing the implementation of the "Regulations."

By mid-November, SHFE lead fluctuated upward, reaching 17,000 yuan/mt. The spot market for battery scrap temporarily stabilized, with tax-inclusive prices for e-bike lead-acid battery scrap ranging between 9,700 and 9,870 yuan/mt, slightly restoring profit margins for secondary lead smelters. As the weather turned colder, the scrapping volume of lead-acid batteries gradually decreased, with stores holding out for higher prices and reluctant to sell. Traders reported pressure in acquiring goods, making battery scrap prices more likely to rise than fall. Overall, it is difficult for enterprise costs to decrease significantly in the short term.