Under the dual pressures of macro and fundamentals, what are the pain points faced by the secondary lead industry? [SMM survey]

On October 25, 2024, SMM invited industry representatives to gather in Nanchang, Jiangxi, to attend a seminar on the recycling and price trends of waste lead-acid batteries. Attendees shared numerous views on industry pain points, especially challenges in recycling, pricing, compliance, and environmental protection policies.

SMM compiled the representatives' speeches and industry data as follows:

1. Overcapacity and excessive competition: China's secondary lead industry faces severe overcapacity, with raw material supply falling short of demand. Malicious competition among enterprises to seize waste battery resources has further driven up material prices and squeezed profit margins. Despite multiple suggestions for cooperation and self-discipline, the actual effect has been limited.

2. Large price fluctuations vs. poor profits: In recent years, the price volatility of waste lead-acid batteries has increased. Even with high lead prices, companies struggle to achieve stable profits. The market price mechanism has not effectively transmitted to the end-use sector, resulting in thin profit margins for producers.

3. Lack of uniform pricing mechanism for battery scrap: Nationwide, the battery scrap market still has issues with black market transactions. Some non-compliant enterprises engage in "grey area" transactions to obtain higher profits, further squeezing the survival space of legitimate enterprises.

4. Imbalance in price and pricing mechanism: The market price of waste batteries does not accurately reflect their scrap nature, leading to severe price fluctuations. Recyclers leverage resource advantages to raise prices, resulting in thin profits for smelters and creating a "resource binding" phenomenon that hinders the establishment of a reasonable pricing mechanism. The lack of a unified industry guide price forces enterprises to raise purchase prices to maintain production.

5. Lack of effective industry self-discipline and alliance mechanisms: The industry lacks strong alliances or self-discipline organizations, leading to frequent malicious competition and price wars. The meeting suggested establishing industry associations or alliances to promote healthy industry development through price guidance and the establishment of price control mechanisms.

6. Policy and tax burdens: The reverse invoicing policy and the implementation of the Fair Competition Review Regulations have many uncertainties, such as inconsistent tax policy implementation and interpretation across different regions and varying tax handling methods among enterprises, further increasing costs and inconveniences. Factors like tax inconsistency and weak policy implementation add to the complexity of business operations.

7. Difficulties in integrating the battery scrap recycling end: The meeting pointed out that most recycling companies in China are small in scale and geographically restricted, making it difficult to conduct nationwide business effectively. Different local environmental protection requirements, with some local governments mandating that waste batteries be recycled locally and requiring special permits for cross-province transportation, increase operational difficulty. Such regional segmentation leads to uneven resource distribution and limits the overall development of the industry.

8. Environmental protection regulations: As China is a party to the Basel Convention, it is difficult to import waste batteries. Other countries, such as South Korea, define waste batteries as "urban mine resources," thereby circumventing the relevant clauses on solid waste import and export. Attendees called for domestic adoption of similar models to open broader recycling and import channels for domestic enterprises.

9. High overseas scrap prices: Several speakers pointed out that the cost of raw materials for waste lead-acid batteries overseas (e.g., the US) has also been rising, from $700/mt in the past to $900/mt now, directly impacting the profit margins of the recycling industry. The rise in raw material prices has brought operational pressure to recycling and production enterprises, limiting the profitability of companies throughout the industry chain.

In summary, the current pain points of the secondary lead industry are concentrated in overcapacity, insufficient raw material supply, restricted recycling channels, and financial and tax compliance issues. These factors are intertwined, posing significant operational challenges to the industry. These pain points constrain the healthy development of the secondary lead industry, urgently requiring policy coordination and industry self-discipline to achieve standardized and sustainable development.