E-Bike Boom Hits Lead on Chinese Recycled Batteries: Commodities

Recycled battery lead from electric bicycles is leaving China, the world’s biggest consumer and producer of the metal, with the largest glut in six years.

Supply will outpace demand this year as consumers trade in old e-bikes for new ones that use less lead, even after the market expanded 5 percent in 2012, according to Wood Mackenzie Ltd. Recycled metal from cars and e-bikes represented 35 percent of supply in 2011, up from 21 percent a decade earlier, the International Lead and Zinc Study Group said. Battery junk from e-bikes, which use about 11 kilograms (24 pounds) of lead, will more than triple to 190,000 metric tons this year from 2010, Goldman Sachs Group Inc. estimates.

While lead rose 19 percent on the London Metal Exchange since October, it gained just 1.1 percent on the Shanghai Futures Exchange as inventory more than tripled. Supply in China, including mined output, will exceed demand by 206,000 tons this year, the most since 2007 and enough to satisfy the nation’s factories for 15 days, according to Credit Suisse Group AG.

“We expect quite a sharp pick-up in scrap availability in China,” said David Wilson, a metals analyst at Citigroup Inc. in London. “You don’t have to be a rocket scientist to think that a lot of car batteries that were initially new in 2009 will be replaced in 2013 and onwards. Batteries used in e-bikes have an even shorter life.”

LME Index

Lead prices have climbed 1.9 percent this year to $2,375 a ton on the LME, compared with gains of 1.7 percent for the LME index of six industrial metals and 5.3 percent for the MSCI World Index of shares. Treasuries have declined 0.9 percent, according to a Bank of America index.

Chinese rode more than 180 million e-bikes by the end of last year, up 36 percent since 2010, Wood Mackenzie, the Edinburgh-based researcher, estimates. Pedaled bikes powered by motors and scooters using electricity are a cheaper option to cars in a country where the capital city, Beijing, is congested with record pollution. Output of e-bikes, which can be speedier on crowded streets and don’t require a license to drive, rose an average 10 percent a year from 2008 to 2010, according to Wood Mackenzie.

In China, which became the largest car market in 2009, there are about 80 vehicles for every 1,000 people compared with 600 in Japan and 800 in the U.S., according to Macquarie Group Ltd. China’s passenger vehicle sales surged 49 percent to 1.73 million units in January, a monthly record, the state-backed China Association of Automobile Manufacturers said in an e-mail on Feb. 7.

More Cars

“Yes, there will be more scrap batteries coming back because there are more cars and there are more e-bikes on the road,” said Duncan Hobbs, a metals analyst at Macquarie in London. “But people want even more cars and even more e-bikes.”

Demand for lead will climb 7.5 percent this year to 4.994 million tons, according to Credit Suisse. China’s economic expansion accelerated for the first time in two years in the fourth quarter and will reach 8.1 percent in 2013, up from 7.8 percent last year, according to the median of 47 economist estimates compiled by Bloomberg.

Some new e-bikes contain less lead as the industry cuts back on costs, according to Beijing Antaike Information & Technology Co. Average lead content has dropped from 13 kilograms in 2010, according to Wood Mackenzie. A standard car battery has 9 kilograms to 10 kilograms of lead, according to the International Lead Association, a London-based association that has 36 members.

Fivefold Gain

China helped send prices up more than fivefold in the past decade. The e-bike market accounts for 39 percent of the country’s lead consumption, compared with 22 percent for cars and trucks, estimates from Deutsche Bank AG show.

Newly mined lead met most of the demand for new e-bikes between 2004 and 2010, Max Layton, an analyst in London at Goldman Sachs, and Roger Yuan, the bank’s analyst in Hong Kong, wrote in a Feb. 5 report. Since then, a growing supply of old e-bikes has reduced the need for new metal, they said. The trend “illustrates the easing of demand pressure in the Chinese lead market since 2010.”

Goldman forecasts lead prices will drop to $2,150 a ton in three months.

Lead Premium

Citigroup recommends investors sell lead and buy zinc, and forecasts the $227.75 price difference between the two will disappear in the next three to six months. Both metals are extracted from the same mines. Lead’s premium over zinc will average $152 a ton in the second quarter compared with $270 this quarter, according to the median of 10 analyst forecasts compiled by Bloomberg.

Globally, refined lead output will grow 5.7 percent this year to 11.4 million tons, and match consumption, which will expand 6 percent, Barclays Plc estimates. China accounts for about 46 percent of worldwide output, the London-based bank said in a report e-mailed on Feb. 15.

Refined lead output in China from recycled material exceeded 2.5 million tons last year, more than double the total five years earlier, according to CHR Metals Ltd., a lead and zinc consulting company in Godalming, England.

“A feature of the market now is the increasing share of sales going to replace older models rather than to first-time buyers,” said Huw Roberts, co-founder of CHR Metals. “This means that the rate of growth of the e-bike fleet is slowing which, in turn, means that recycled lead from e-bike batteries will increasingly represent a larger share of the overall demand for lead from this sector.”

Before it's here, it's on the Bloomberg Terminal.