Indian battery makers are ramping up production to meet the seasonal demand for inverters after having lost production days due to COVID-19. This is causing demand push inflation for secondary lead ingot markets as prices have gradually increased.
Markets in Mumbai are more price volatile than Delhi as lockdown restructions continue to be in effect in the city, causing supply chain disruptions for smelters. There is an oversupply of batteries in Mumbai markets. Though Mumbai has a strict lockdown in place, the number of COVID-19 cases is rising alarmingly. Several smelters said their labourers are either infected and cannot attend work or have not yet returned after going back to their hometowns. Consequently, many smelters are running on lower capacities while some are working overtime to cater to the demand from the battery makers.
Battery makers from South India were running at around 60pc capacity in July compared to 40pc in June. The apparent demand from battery makers is cushioning prices for secondary lead ingots in India. Prices in Delhi for secondary lead ingots jumped as soon as July bookings began and prices rose by Rs3,500 ($46/mt) to around Rs138,000/mt ex-works producer from June beginning. Mumbai prices jumped higher with lockdown being lifted in industrial areas to around Rs141,000/mt ex-works producer up by Rs7,000/mt from June levels.
Towards the end of July, the Davis Index for Mumbai secondary lead ingots jumped by Rs7,657/mt to Rs140,615/mt ex-works producer from June 1 on the back of high demand from battery makers due to monsoon-driven demand for inverters. Similarly, the index for Delhi too jumped by Rs5,415/mt to Rs140,615/mt ex-works producer from June 1. In a stretch of approximately two months, prices increased substantially but are still Rs9,000-10,000/mt lower than January levels. Market participants believe that January levels might return in Q3 (September quarter) or Q4 which are relatively better quarters in terms of demand in India. Festival months in India push demand for auto sector which trickles down to battery makers and downstream producers.
Change in pattern
Since COVID-19 lockdown, battery scrap and secondary lead ingot prices have lost sync. Prior to COVID, prices for both would move in the same direction. However, we can see the pattern changing with several smelters shut and not procuring scrap, leading to a glut of battery scrap in the market. During COVID-19 lockdowns, several auto batteries got discharged and added to the pile up of scrap. The scrap sellers ran out of place for storage and started selling batteries at lower rates post lockdown.
In the graph above, we can see towards the end of July, lead ingot prices rose but scrap prices fell in Delhi and Mumbai. It was only in the beginning of July where prices were mostly in sync. In the following weeks of July, prices for scrap remained up but secondary lead ingot prices dipped which was driven by announcement of lockdown resulting in lower trades for secondary ingots but stocking of lead scrap with smelters out of fear of extension of lockdown.
Demand for secondary lead ingots quickly picked up the following week but since many of the smelters stocked up on batteries, prices again started to fall and reached around Rs78,000-79,000/mt in Mumbai and Delhi.
Recycling companies that currently have huge amounts of debt are likely to face issues, said traders amid the economic slowdown and losses incurred by these companies. Smaller smelters with monthly production capacity of 100-150mt have resumed production and are on track to start supplying in August at near pre-COVID levels. On the negative side, there are some smaller sized smelters in containment zones that are finding it difficult to sustain business activities in this market and may go bankrupt later.
We can say that market has picked up for lead scrap and ingots indefinitely as local demand rose and exports of secondary lead ingots increased and supported market prices. Many battery makers are also stocking up on lead ingots before off season begins, until September. Some Mumbai smelters believe that demand may have staggered towards the end of July and may slightly decrease in August.