September/October 1991
The U.S. secondary lead industry is suffering through what some are calling a depression, not a recession. But despite current difficulties, old and new smelters alike are banking on future demand for recycled lead.
By Kent Kiser
Kent Kiser is associate editor of Scrap Processing and Recycling.
U.S. secondary lead smelting industry is in a quandary: It’s an industry with a promising future but a challenging--perhaps life-threatening--present.
Talk with managers and executives of U.S. secondary lead smelters about the current lead market and you might think they're talking about the apocalypse. Times are tough for all metal commodities, but secondary lead smelters claim that they must deal with more than just the economic recession; their metal is also burdened with potentially crippling legislation, ever-more-stringent environmental regulations, and negative public opinion.
Despite the current market problems, states Jeffrey L. Zelms, president of Doe Run Co. (St. Louis) and chairman of the Lead Industries Association (New York City), "We see the 1990s as an excellent decade." Secondary lead continues to gain market share from primary, thanks to the high lead prices and strong replacement battery demand seen in recent years, as well as the increased emphasis on recycling, all of which drove up the value of and demand for scrap lead-acid batteries. In 1990, in fact, U.S. secondary lead production was an estimated 1.012 million short tons, compared with 444,400 tons for primary lead, according to the U. S. Bureau of Mines (Washington, D.C.), giving secondary lead approximately a 70-percent share of the market.
1991: A Survival Year
The U.S. secondary lead smelting industry has undergone significant rationalization since its overcapacity days of the early 1980s. Since then, the secondary business has been ruled by survival of the fittest. Carl Fischer, corporate manager of raw material purchasing for RSR Corp. (Dallas), observes, "The ones that are left are survivors, and if they're survivors, they're strong.”
But is strength enough? This summer, lead prices on the London Metal Exchange (London) hit lows not seen since 1986--approximately 25 cents per pound. "The market is abnormally low right now," says David F. Cook, marketing consultant with Lake Engineering Inc. (Dumont, N.J.), who predicts that "lead prices are going to stay flat for a while." Ted Zagrzebski, group controller for GNB Inc. (St. Paul, Minn.), agrees, saying that the secondary lead market goes through a predictable up-and-down economic cycle every three or four years. From 1986 to 1990, the lead industry enjoyed high lead prices and reliable demand, but now the industry could be in for a few years of lower prices and diminished returns, Zagrzebski says.
Fischer echoes that sentiment: "There is definitely a downward trend in demand for lead." He points out that the lead market also follows a yearly cycle that begins with a "midwinter spurt" in January and February, followed by a "spring slump" that slips into the "summer doldrums."
In late August or September, lead consumers begin buying for the new season. There is a holiday lag beginning around Thanksgiving, then the cycle begins again in January.
Secondaries, currently languishing in the summer doldrums, hope that the fall buying season will help revive the market, which is hamstrung by low demand, scarce scrap battery supplies, and low selling prices. On the demand side, secondary lead sales were reportedly down up to 25 percent in the first half of 199 1. In some cases, smelters have been selling their product at a loss, Zagrzebski says. One smelter president goes so far as to say, "I don't think there's a secondary lead smelter in the country making money now."
Scrap battery supplies have dried up, Cook says, for two main reasons: The mild 1990 winter as well as the recession have reduced replacement battery sales, and stocks of scrap batteries were depleted during times of high lead prices. "The last couple of years flushed a lot of batteries out of the woodwork," Cook notes.
Low values have also stifled supplies. Smelters were paying up to 10 cents a pound, delivered, for scrap batteries a year ago, but today they can only afford to pay 5 cents, picked up--not enough to guarantee reliable supplies or healthy profit margins. Zelms remarks, "The lead market is as bad as I've seen it in a decade. It's very troublesome." Even if the recession were to end today, he says, the lead industry's built-in lag would mean another six months of scraping by.
The Retailer's Expanding Role
The last year has seen many changes in the secondary lead industry, including the increased role of mass merchandisers such as K mart Corp. (Troy, Mich.) and Wal-Mart Stores Inc. (Bentonville, Ark.) in the collection of scrap batteries. In 1990, Exide Corp. (Reading, Pa.) formed a joint battery recycling program with K mart in which Exide agreed to pick up and purchase batteries from more than 2,200 K marts nationwide. GNB formed a similar arrangement with the Wal-Mart chain. Cook estimates that battery wholesalers, retailers, and manufacturers collect close to 75 percent of all scrap batteries destined for recycling in the United States.
K mart initially offered to pay $2 for each scrap battery delivered to its stores. This offer drove up the demand for scrap batteries and reduced scrap stocks around the country. The price also effectively knocked many scrap processors out of the bidding for spent batteries and shifted the collection balance even more toward battery retailers and manufacturers. K mart was responding, in part, to the growing public demand for recycling, offering its buyback program as a service to its customers, says Zagrzebski. It also seems to have been capitalizing on a prime publicity opportunity and a chance to attract more customers to its stores. Exide reportedly saw the arrangement as a chance to make the most of the strong lead market at the time.
But now, one year and more than 3 million spent batteries later, K mart has reduced its offer to $1 per spent battery, a move that let scrap processors back in the purchasing door but also reduced the return volume of used batteries.
Mass merchandisers and battery manufacturers will remain the dominant collectors in the scrap battery market, Cook predicts, and their share of the market will increase when lead prices are high and when the replacement battery market is strong. But in today's weak market, Fischer notes that more loads of scrap batteries must be purchased from the open market rather than from battery manufacturers. "Things are a little difficult these days," he says cryptically.
Now Secondary Players
Despite the current recession and the trend toward rationalization in the industry, two new secondary smelters are planning to enter the market in 1991.
Doe Run--one of only two primary lead producers in the United States--is converting one of its primary operations into a $38-million, 60,000-ton-capacity lead recycling facility in Boss, Mo. The facility will also recycle plastic battery casings as well as battery acid, which it will process into sodium sulfate for use in laundry detergent and the glass and paper industries. Asarco Inc. (New York City), the other major U.S. primary lead producer, has been considering opening a secondary smelter, but it has not announced any definite plans.
Several years ago, Doe Run read the writing on the wall: Secondary lead was becoming more and more dominant over primary, and if it wanted to maintain its market share, it needed to open a lead recycling facility, Zelms says. The company could then be a one-stop lead shop for its customers, providing primary, secondary, corroding, antimonial, alloys, all physical shapes, and precision lead strips. Doe Run's only concerns, Zelms says, were: "Can it be done environmentally soundly and can it make money?" The company spent considerable time investigating environmental technology to ensure that the facility would meet current and future environmental criteria, Zelms notes. As for making money, only time will tell.
Tejas Resources Inc. is opening the other new secondary smelter, a 30,000-toncapacity facility in Terrell, Texas. The company decided to build the smelter three years ago, in part to become part of the burgeoning secondary market and m part to ensure a steady supply of lead to Powerlab Inc., its sister company in Terrell that makes lead oxide for batteries. As the company enters the market, it is more concerned about the low lead price than environmental issues, says President Richard Egan.
The secondary industry is bracing itself for the entry of these new players in the face of already scarce scrap supplies and reduced demand. As Fischer remarks, "They're going to be competition."
The Regulation Gauntlet
While increasing competition is putting pressure on existing lead smelters, Cook says they may soon face their toughest challenge in the form of stricter environmental regulations and legislation. The future looks promising for secondaries that are willing-and able-to make the necessary expenditures and commitments to meet the next round of environmental regulations, Cook asserts. "The survivors will be those who can meet the technological and economic requirements," he says. Those that can't will probably find themselves out of business in the next 5 to 10 years, Cook asserts.
Those that can afford such expenditures face the additional hurdle of foreign competition that does not have the same compliance costs. To counteract this, Zagrzebski believes, the U.S. government should tax or restrict lead imports from foreign smelters, noting that some foreign smelters can undersell domestic producers not only because they may not have to meet the same environmental standards, but also because their labor costs are often much lower. These advantages also enable some foreign smelters to pay more for scrap batteries, which reduces the amount of scrap available to domestic smelters. In these cases, domestic smelters are, in effect, being punished for complying with environmental laws, Zagrzebski says.
Cook says that the Environmental Protection Agency (EPA)-through its lead pollution prevention plan-and Congress are "in a bit of a pickle" in that they are trying to encourage recycling while demanding cleaner recycling and imposing compliance costs on the marketplace. When the lead market is depressed and when environmental costs reduce a smelter's margins, recycling becomes less economical. "If this country wants recycling," Zagrzebski notes, "government has to do something."
On the legislative front, secondary smelters are threatened by the Lead Exposure Reduction Act, introduced by Sens. Harry Reid (D-Nev.) and Joseph I. Lieberman (D-Conn.), which seeks to ban the use of lead in products such as plumbing fixtures, solders, curtain weights, and packaging.
Lead is also facing challenges on the international front. The Organization for Economic Cooperation and Development (OECD) (Paris) drafted a lead risk-reduction strategy that the lead industry says puts too much emphasis on finding substitutes for lead in products and exaggerates the health effects of lead.
There is also international concern about how nations will implement the Basel Convention on the Control of Transboundary Movement of Hazardous and Other Wastes. While it appears that many Western countries may exempt most recyclable materials such as scrap metals, paper, textiles, and plastics from the convention's restrictions on international shipping, lead and some other metals will likely be subject to stricter controls.
The industry-threatening nature of these proposals has created an urgent need to educate the public and legislators about lead, says Zelms. Lead has been an easy target for drastic legislation because "there are areas in the United States where activities of the past generate problems today," he notes. In addition, Zelms asserts, "Our industry has done a less-than-superb job educating the public about the benefits of lead and how dramatically their lifestyles would change if, overnight, you said lead doesn't exist. " The matter has become an emotional issue rather than remaining an objective, scientific one, he says, but the lead industry must work with government and the public to create "reasonable, equitable, viable alternatives."
One possible alternative is a bill by Rep. Esteban E. Torres (D-Calif.) and Sen. Timothy E. Wirth (D-Colo.) that would require the EPA to set a minimum recycled-content level for various products, including lead-acid batteries, and gradually increase the minimum level each year. Manufacturers of these products could either incorporate the minimum amount of recycled material in their products or purchase “credits” from manufacturers that exceed the minimum. In batteries, the bill would require a beginning level of 80-percent recycled lead, with subsequent increases of 2 percent per year.
The Promise of Future Markets
The future is not all leaden gray for lead. Though there has been no major market development to make lead demand skyrocket, Zelms says, some new and current markets are promising. For example, the advent of electric cars in this decade could give a significant boost to the lead-acid battery market. Lead continues to show strength as shielding in radiation and radon applications. Batteries are also being used more and more by electric utilities to store power during off peak hours for use during times of heavy demand, he points out. And the Lead Development Association (London) is promoting the use of lead in earthquake shock absorbers in building foundations and in generators that use a molten lead/bismuth alloy to create electricity. In general, Zelms notes, as world expenditures shift from the military sector back to other domestic markets, lead demand will pick up.
The secondary lead smelting industry may be down now, but it is far from out. Lead's turnaround will depend on the nation's recovery from its current recession as well as a strong commitment by smelters to prepare their industry for the future. As Zelms asserts, "Our industry should do whatever can be done to improve the understanding of the vital nature of lead and show that the production and consumption of lead today is done without significant risk." •
The U.S. secondary lead industry is suffering through what some are calling a depression, not a recession. But despite current difficulties, old and new smelters alike are banking on future demand for recycled lead.