Analysis: Lead gets lifeline as essential industries energise battery demand

GS Yuasa

23/06/2020 16:04

* Hospitals, supermarkets buy batteries for backup power
during
pandemic
    * Industrial batteries account for 20-30% of total lead
demand
    * WoodMac forecasts larger drop in car batteries than
industrials
    * Many lead producers struggle due to fall in car battery
demand

    By Zandi Shabalala
    LONDON, June 23 (Reuters) - Demand for lead-acid batteries
from hospitals and food producers seeking more backup power
during the coronavirus pandemic is helping battery and lead
producers weather a collapse in orders from the auto sector.
    For high-quality lead producers such as Glencore's  GLEN.L 
Britannia Refined Metals, Ecobat Technologies and others, the
additional demand from customers outside the car industry has
helped keep price discounts in check during the pandemic.
    Industrial batteries account for 20-30% of global lead
consumption, while auto batteries account for around 55%. 
    Industries deemed as essential during the pandemic, such as
hospitals, food producers and supermarkets, are stocking up on
batteries produced by companies such as EnerSys  ENS.N , Ecobat
and GS Yuasa  6674.T  to power backup generators and
uninterruptible power supply (UPS) systems.
    A global move to working from home has also boosted demand
from the technology firms who need to keep networks running.    
    Europe's largest lead producer Ecobat said its sales on the
continent held steady in the first quarter, compared with an
estimated 10% drop in the sector overall. 
    "You have had some rather divergent fortunes in battery
sales. Industrial batteries have kept the wolf from the door,"
said David Summerfield, director of sales at UK-based Ecobat.
    Sales were supported by new contracts for batteries, some
for a few years, and higher demand from hospitals and
telecommunications companies, which helped offset losses in the
auto sector, he said.
    Auto sales have plunged across the globe due to
coronavirus-related restrictions, although manufacturers have
started to ramp up production in recent weeks.
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    Also weighing on the auto sector are lockdowns, which have
meant subdued demand from motorists for replacement batteries.
    Wood Mackenzie estimates lead demand for industrial
batteries will fall 3.6% this year to 2.63 million tonnes, while
demand for auto batteries will drop 6.5% to 7.95 million tonnes.
    "The situation for some battery makers would have been much
worse without industrial demand," said Wood Mackenzie lead
analyst Farid Ahmed, who expects total lead demand this year to
fall 5.9% to 12.14 million tonnes.
    Declining demand has pushed prices benchmark prices for lead
 CMPB3  down 8% this year.
    They are starting to stabilise at around $1,760 a tonne,
although BMO Capital Markets expects prices to average $1,700 a
tonne in the fourth quarter even with a marginal recovery in
demand. 
    Greater use for energy storage fuelled 3.5% annual growth in
demand for industrial batteries over 2011-2019, Ahmed said.
    During the pandemic, U.S.-based Exide Technologies said it
sold 7,000 batteries to one hospital in Europe alone. 
    "Due to the Covid19 situation, we are experiencing a
temporary increase in inquiries and quotations in the area of
stationary, UPS applications, used for example in the healthcare
sector, telecommunications or even in the retail sector (food
industry)," Exide said in an emailed statement. 
    Japan's GS Yuasa  6674.T  said it supplied batteries to
London's Nightingale hospital - one of a handful of hospitals in
the UK built within weeks to cope with coronavirus patients -
but did not give figures.
    Supermarkets require extra power backup as they have
expanded services and shifted more goods around during the
pandemic, while a surge in the numbers of people working from
home has spurred rising demand for cloud computing services.
    "This recession has turned the market on its head because
industrial demand is doing well, whereas in a typical downturn
that would be the first area which would fall away," said CRU
Group analyst Neil Hawkes.
    Those battery makers that have relied too heavily on the car
industry have been caught out.
    The German arm of French lead producer Recylex  RXPA.PA  was
forced into insolvency last month after the auto sector shut
down, while Clarios, the world's biggest automotive battery
maker, had its credit ratings downgraded by both Moody's and
Fitch due to the business impact of the coronavirus. 
    Fitch said weaker market conditions facing Clarios were
expected to last for at least the next two years.

 (Reporting by Zandi Shabalala; editing by Pratima Desai and
Susan Fenton)
 ((zandi.shabalala@tr.com; +44 77 43 366 127;))