What’s Weighing on Lead?

November/December 2013

Recyclers wonder how many North American secondary lead smelters can shoulder the dual burdens of continuing tight margins and  higher emissions standards.

By Helen Burnett-Nichols

With the growing interest in hybrid vehicles and in recycling the high-value metals their batteries contain, the lead-acid battery, invented more than 150 years ago, tends to get overlooked. These batteries have been a phenomenal recycling success story, however, with the United States recovering more than 98 percent of battery lead scrap, according to the Battery Council International (Chicago). That recovered lead meets the vast majority of the country’s lead needs, according to data from the U.S. Geological Survey (Reston, Va.) and ISRI, with most of it going right back into lead-acid batteries.

Despite its successes, the domestic secondary lead smelting industry is in flux. Shifts in market fundamentals that began long before the 2008 recession have led to industry consolidation, tight margins, and a scramble for scrap. Tighter emissions regulations set to take effect in 2014 are putting additional economic burdens on lead smelters. Further consolidation is looming, some say, which could have a ripple effect all the way down the supply chain, from secondary smelters to recyclers and their suppliers.

The Price and Demand Picture

Like most metal commodities, refined lead experienced a significant price increase in the first decade of the 2000s, in part due to China’s economic growth and its demand for raw materials becoming a major factor in world markets. Between 2000 and 2010, China’s lead demand increased more than fivefold while consumption in the rest of the world fell about 5 percent, says Huw Roberts, director of global lead and zinc industry analysis for consulting firm CHR Metals (Surrey, England). Prices fell substantially during the 2008-2009 economic downturn, but they have since rebounded to pre-recession levels, says Jeremy Sova, vice president of business development at Battery Solutions (Howell, Mich.). The London Metal Exchange three-month-average price rose from the equivalent of 22 cents a pound in 2001 to $1.08 in 2011. The recession was just an interruption of the longer-term market factors that were affecting the industry, he says.

When lead prices rose sharply in 2007 and 2008—in part due to China restricting refined lead shipments through export taxes—recyclers began earning large margins on their scrap battery purchases, Roberts says. Scrap processors and brokers, who had paid little attention to scrap lead-acid batteries during the extended period of low prices in the late 1990s and early 2000s, eventually took notice. Moreover, secondary smelters began to add battery processing capacity, and the competition for material to fill that new capacity helped drive scrap battery lead prices higher relative to refined lead prices.

Another change in demand began about a decade ago, when globalization of the lead-acid battery recycling market really started to take hold, Sova says, with a large influx of foreign buyers approaching U.S. and Canadian scrap battery suppliers, offering prices significantly higher than those in the domestic market. Though exports fell slightly in 2009, they have more than tripled since, rising from nearly 7.3 million batteries exported that year to more than 22.7 million batteries exported in 2012, according to data from the U.S. Commerce Department and International Trade Commission (Washington, D.C.). The international competition for spent batteries “forced the North American scrap battery consumers to have to increase their pricing” relative to the LME lead price, Sova says, to procure enough scrap to remain operational and profitable.

Indeed, a report released earlier this year on North American secondary lead recycling by the Commission for Environmental Cooperation Secretariat (Montréal), a coalition of the U.S., Canadian, and Mexican environmental agencies, states that in recent months, the price of spent lead-acid batteries on the open market had edged close to the price of refined lead, leading to margin compression in the supply chain.

Just how damaging higher scrap lead prices can be became clear in June, when Exide Technologies (Milton, Ga.), one of the three largest U.S. consumers of lead-acid batteries, filed for bankruptcy protection as it reorganized and secured new financing. Exide pointed to “unprecedented increases” in product costs driven primarily by the market price of scrap lead in North America, which have put pressure on its margins. “Suppliers of raw materials have subjected Exide to pricing premiums, and Exide has been unable to pass along higher production costs to consumers,” the company stated in its bankruptcy filing.

Capacity Expansion

Roberts attributes part of North America’s apparent shortage of used lead-acid batteries—and the consequent price increase for battery scrap relative to refined lead—to significant net growth in the continent’s battery scrap processing capacity. “Johnson Controls (Milwaukee) commissioned a 130,000 [mt-per-year refined lead capacity] plant in Mexico in 2011 and followed this with a plant of similar size in South Carolina, which opened in late 2012,” he says. “Gopher Resource (Eagan, Minn.) has also added 100,000 [mt per year] to its capacity,” he says. Although the closure of two Exide plants offset some of that new capacity, the net gain since 2010 within the North American market is more than 200,000 tons, he says.

Generally, the battery scrap supply varies according to how many batteries are replaced, Roberts says. That, in turn, depends on battery sales in earlier years. The problem now, explains Marc Desautels, commercial manager at the Newalta battery recycling facility in Ville de Sainte-Catherine, Québec, is that the increases in smelting capacity have outpaced the supply of scrap batteries by an estimated 20 percent. With the battery supply growing only 2 to 3 percent a year, he says, it will take nine or 10 years for the imbalance to reach equilibrium again. Some companies might not be able to hold on that long. “Our industry, the smelting industry, is quite difficult to click on, click off,” Desautels says. “It’s something that has to run constantly or not. … So this 20-percent disequilibrium, or thereabouts, is causing issues.”

Despite that long-term concern, short-term supply and demand fluctuations can ease the pressure on smelters somewhat. In late August, American Metal Market reported that the price for spent automotive lead-acid batteries fell to the range of 34 to 37 cents a pound, a result of “an increase in available supply of spent lead-acid batteries coupled with temporary maintenance shutdowns at some secondary plants.” In part, the USGS reports, the scrap battery supply increase came as a result of higher summer temperatures causing battery failures in parts of the United States. Jeff Wasserman, director of scrap marketing at Pull-A-Part (Atlanta), also attributes the current supply increase to more used cars being recycled.

Slightly more battery scrap available in the U.S. market at the moment likely points to healthy sales of replacement batteries, Roberts says, but it also might reflect the market adjusting to higher processing capacity. “At this stage, however, I suspect that scrap prices will remain elevated relative to the lead price for some time yet,” he says.

Supply Concentration

Exide also cited “intense competition” in the battery industry as one of the factors leading to its restructuring. Specifically, when Wal-Mart Stores (Bentonville, Ark.) designated an Exide competitor, Johnson Controls, as its sole-source supplier of transportation batteries, Exide lost not only a sales outlet for the batteries it produces but an “important and reliable source of battery cores” it had under a captive-core arrangement with the retailer.

Feedstock is one of the biggest issues smelters face today, exacerbated by the increase in battery ownership concentration, one industry participant says. Two decades ago, he explains, a few lead-acid battery manufacturers controlled about 25 percent of the spent battery supply through their distribution networks. “That situation has flipped over” in the last few years, with those companies now controlling more than 75 percent of the supply. “Battery manufacturers and distributors control more and more feedstock to feed their plants and to get back lead units through a tolling program,” he says. That leaves only about 20 percent of batteries for the remaining smelters “to get their hands on [them], to purchase them from the end user or the distributor, from your local scrapyards,” he says.

The CEC report explains that those lead recyclers who don’t have tolling agreements or vertical integration with battery manufacturers are dealing with insufficient supplies of spent batteries and have found that “vulnerability to the vagaries of the open market for increasingly expensive [spent lead-acid batteries] is constraining both profits and their abilities to operate recycling facilities at optimal volumes.”

Stronger Environmental Regulations

The CEC report notes that in 1969, there were more than 150 lead smelters in the United States. This number has since shrunk to 15 secondary smelters as a result of “increasingly stringent environmental regulations” driving up costs and forcing smaller smelters to close, it says.

Adding to the cost of doing business are the U.S. Environmental Protection Agency’s (Washington, D.C.) new national emission standards for hazardous air pollutants from secondary lead smelting. The new standards tighten the emissions limits for lead compounds; revise the standards for fugitive emissions and those released during startup, shutdown, and malfunctions; and more. Existing smelters have until Jan. 5, 2014, to comply. “There’s a big, big push to improve the air quality standards in the USA, and there’s a large capital investment that’s required to comply with those new rules that are coming online in 2014, so it’s put some pretty significant economic pressure on the smelters,” Sova says.

The new national emission standards add another layer to the existing environmental regulations with which these facilities must comply. Indeed, Exide says it “suffered a significant setback” to refinancing prior to its bankruptcy filing when California’s Department of Toxic Substances Control (Sacramento) ordered its Vernon, Calif., battery recycling facility to suspend operations in April because of reports that its underground stormwater system and furnace emissions did not meet state standards. The plant was closed for more than seven weeks, until the California Superior Court issued a preliminary injunction allowing the facility to operate while the company implemented planned improvements. In October, Exide announced an agreement with CDTSC to spend more than $7 million on those improvements to emissions and stormwater controls, soil and surface dust testing in the surrounding neighborhood, and voluntary blood tests for nearby residents. The plant recycles about 8 million automotive batteries a year, Exide says.

It might not make sense for some aging plants to revamp to meet the new emissions standards, says Randy Best of Best Battery Recycling (Kansas City, Mo.), but he and Desautels say most of the bigger smelters have already done so. For example, Alex Molinaroli, president of Johnson Controls Power Solutions (Glendale, Wis.), announced last year that the company was planning to invest $162 million on its North American recycling centers to ensure they meet the latest environmental standards. Doe Run’s Buick Resource Recycling Division (Boss, Mo.) has completed $20 million worth of upgrades aimed at meeting the new emissions standards. Gopher Resource also recently modified and expanded its battery smelter and recycling plant in Tampa, Fla., adding a new air filtration system, among other improvements.

Pull-A-Part’s Wasserman says scrap suppliers such as his company are concerned about increased EPA scrutiny of smelters, which will likely reverberate down the supply chain as it becomes more costly for the smelters to conform to those requirements. “They’ve got to find a way to absorb those costs, and it’s going to be in the amount of scrap they’re taking in, or in the sale of their lead to battery makers,” he says. Battery Solutions’ Sova takes a different perspective, however. The EPA is “setting a standard and raising the bar for industry to operate under,” he says, “so I think those that have the foresight to look outwards and understand that things are changing … they’re going to put themselves in a pretty good position to be able to be profitable over a long time horizon.”

Those who sell batteries to domestic smelters should keep tabs on the facilities’ environmental compliance record for liability reasons. In the past 25 years, hundreds of recyclers have been sued under the federal Comprehensive Environmental Response, Compensation, and Liability Act, otherwise known as Superfund, for selling scrap batteries to secondary lead recovery facilities without doing the required compliance checks, says Donald Mitchell, an environmental and commercial litigator with Arent Fox (Washington, D.C.). The passage of the Superfund Recycling Equity Act in 1999 has dramatically reduced the number of claims and cases, Mitchell says, but it has not stopped them entirely. He points out that SREA does not give scrap companies an automatic exemption from Superfund liability. To be protected under SREA, a company still must exercise “reasonable care” to determine that the facility where the recyclable material was processed “was in compliance with substantive (not procedural or administrative) provisions of any federal, state, or local environmental law.” (One way ReMA members can do so is by ordering annual reports through ISRI’s SREA Reasonable Care Compliance Program; visit www.isri.org/srea for more information.)

Exports on the Rise

Some market particpants are wondering whether the EPA’s tighter regulations are a factor behind the jump in used battery exports, most notably those to Mexico, the top U.S. export destination. Those exports jumped from just over 8 million batteries in 2008 to more than 20 million in 2012, according to Commerce Department and U.S. ITC data; from 2004 to 2011 they increased between 449 and 525 percent, according to CEC estimates. The CEC attributes most of the increase in that period to “the business development and supply chain management of Johnson Controls,” pointing out that EPA data show the firm’s Ciénega smelter, which it acquired in 2004, was the destination of 43 percent of all spent lead-acid battery exports to Mexico in 2011. Canada, the second-most-popular destination for U.S. spent lead-acid batteries, received only about 2.1 million batteries in 2011, far fewer than Mexico, but that’s nearly 400 times the 5,300 batteries it received in 2008. Smelter expansions in both Mexico and Canada are a result of the difficulty in getting permitting for a new smelter in the United States, according to one smelter, who notes that only one new domestic smelter and one major expansion have occurred in the last two decades.

This development is not without controversy. In recent months, U.S. smelters, nonprofit groups, and the media have taken issue with spent battery exports to Mexico and their potential for environmental damage. CEC notes that “important gaps remain within [Mexico’s] overall regulatory framework, as well as with respect to the prevailing environmental and public health standards in the United States and Canada.” Mexico lacks regulations that “establish lead emission limits from stacks and contain requirements to control fugitive emissions,” it says. There also is no public data on lead emissions and the lead concentration in the ambient air near Mexico’s secondary lead smelters, it says. The ambient air standard in Mexico is 10 times less stringent than that in the United States, it reports.

In May, Robert Finn, president and CEO of RSR Corp. (Dallas), which operates lead-acid battery recycling facilities in California, Indiana, and New York, questioned the EPA’s focus on the export of leaded glass from cathode-ray tubes while “ignoring the far greater and long-festering threats posed from the relentless export of used lead automotive batteries to facilities in Mexico.

“The volume of spent lead batteries being exported each year dwarfs the sum total of CRT waste in existence across the country. Worse still, the majority of those exported batteries are being sent to recycling facilities in Mexico that do not meet minimum EPA standards for emissions controls or OSHA regulations for workplace safety,” he added.

Best points out that though many Mexican smelters are owned by U.S. battery companies, the fact remains that they don’t have nearly the same constraints as those operating in this country. “A lot of [suppliers] are afraid of the smelters and won’t send [batteries] down there,” he says. Indeed, Wasserman says Pull-A-Part does not export spent lead-acid batteries due to downstream liability concerns. “There’s always people out there looking for batteries, but we’re reluctant to sell to them. We want to know where the material is going,” he says.

Sova expects, however, with the United States raising the bar on this issue, Mexico and other countries also will have to raise their standards to maintain market share. “We’re seeing a lot more pressure on the larger, cleaner Mexican smelters to have the same level of standards that are being put in in the United States,” he adds.

Looking Ahead

The automobile industry’s move toward a new generation of lead-acid batteries that are lighter, more powerful, and designed to last even longer ultimately might add to smelters’ feedstock woes. But, industry participants say, lead’s capacity to be recycled and to handle stored power means it will likely be around for many decades to come. “It’s a metal that has been replaced for many functions out there, but it’s still a viable metal in the lead-acid battery world,” Desautels says.

Although the demand picture might continue to look bright, many on the recycling side expect to see an already consolidated industry consolidate even more over the medium term. “We expect that the [consolidation] trend is going to continue, and the demand for scrap is going to outweigh the supply for the next few years,” Sova says. “However, over a longer time horizon, I would expect that the forces of capitalism will cause some of the less environmentally friendly primary and secondary lead smelters to drop out of the picture, helping bring supply and demand back into balance.”

Helen Burnett-Nichols is a writer based in Hamilton, Ontario.

Battery Shipping Basics

Twenty years ago, if you had told people in the scrap industry that their dead automotive battery had much value, they might have chuckled. Today, scrap lead-acid batteries have become a hot commodity. In the rush to capitalize on their greater value, however, the need to handle such batteries with care is sometimes forgotten. Lead-acid batteries contain chemicals that can damage the environment if they are not properly handled, transported, and recycled according to the packaging requirements of the U.S. Department of Transportation (Washington, D.C.), which are in the Code of Federal Regulations title 49, parts 172 and 173.

In 2009, DOT’s Pipeline and Hazardous Materials Safety Administration surveyed battery retail facilities and manufacturers and discovered the following:

• Shippers of scrap lead-acid batteries showed widespread noncompliance with the regulations.
• Battery manufacturers were providing inconsistent and conflicting information to retailers.
• Those at the retail level lacked training in how to prepare batteries for shipment.
• Carriers were accepting improperly packaged pallets containing damaged and leaking batteries.

Two of the most common packaging errors were battery terminals that were not properly insulated and shrink-wrap that was not tight enough and secured to the pallet to make the pallet and batteries one unit. DOT developed an action plan to increase compliance and, more recently, battery shippers have taken additional precautions to ensure scrap batteries are packaged correctly.

To facilitate the recycling of scrap lead-acid batteries, DOT allows them to be shipped as a recyclable material and not a universal waste. Any company that ships sealed lead-acid batteries can make use of this exception—found in 49 CFR 173, subsection 159(e)—but only in these circumstances: (1) Batteries are the only hazardous material on the vehicle; (2) the batteries are loaded or braced to prevent short circuits; (3) any other material loaded in the same vehicle must be blocked, braced, or otherwise secured to prevent contact with or damage to the batteries; and (4) the transport vehicle is not carrying material shipped by any person other than the shipper of the batteries.

Loads of scrap sealed lead-acid batteries must have insulated battery terminals so they cannot touch any other terminals or metal objects. If battery terminals are not protected, a fire could result, which could lead to loss of property as well as civil penalties, criminal fines, or imprisonment for the shipper, who is legally responsible for the way the load is packaged.

Most of the raw materials from recycled lead-acid batteries will be used to manufacture new lead-acid batteries. Nearly 97 percent of a battery—the plastic, the lead, and the sulfuric acid or electrolyte—can be recycled, and lead-acid batteries are one of the most recycled products in the country. When packaged properly, shippers protect themselves, their company, and their customers and show their interest in protecting our environment.

Tod A. Lyons is senior sales manager for Interstate Batteries Recycling (Dallas). For information on how to stack used batteries on pallets for shipping, go to corporate.interstatebatteries.com/recycling/Newsletters/pdfs/how_to_stack_batteries.pdf.