Recycled lead continues to be a growing contributor to global supplies. In fact, according to International Lead and Zinc Study Group figures quoted in a February 19 Bloomberg article, recycled lead, mainly from car and e-bike batteries, made up 35 percent of lead inventories in 2011, up from 21 percent 10 years earlier.
That trend will likely continue as the recovering economy drives car and e-bike demand higher, creating a rising tide of recycled lead as the batteries in those vehicles are eventually replaced. Global car sales will hit 65.71 million units this year, up from 62.45 million in 2012, according to a March 6 report from Scotiabank. What’s more, over 25 million e-bikes were sold in China alone last year, and that figure is expected to rise to 47 million in 2018, as per recent figures from Pike Research. And right now, there are over 120 million e-bikes zipping along Chinese streets.
The question is whether the coming wave of recycled lead will swamp demand. Macquarie Wood analyst Duncan Hobbs doesn’t think so. “Yes, there will be more scrap batteries coming back because there are more cars and there are more e-bikes on the road,” he told Bloomberg. “But people want even more cars and even more e-bikes.”
Lead-acid batteries are heavily recycled
Lead is one of the world’s most recycled metals: according to the US Geological Survey, about 1.14 million tons of recovered lead were produced in the United States last year, or about 80 percent of domestic consumption, with almost all of it coming from consumer products.
A February 2011 Alt Energy Stocks article notes that 97 percent of all lead-acid batteries in the US and Europe are recycled, mainly because the process is “straightforward and cost-effective.” Essentially, exhausted batteries are broken into pieces and immersed in water, after which the lead sinks to the bottom and the plastic rises to the top. The lead is then melted and poured into ingot molds. Impurities are removed and the lead is sent to manufacturing plants to be incorporated into new batteries. Battery acid can also be converted into sodium sulfate, which is used in laundry detergent as well as glass and textile manufacturing, or converted to water and treated.
One way for investors to tap into the rising demand for batteries is to invest in stocks that both make and recycle these products. Here’s a look at three:
Through its Power Solutions division, Johnson Controls (NYSE:JCI) is the world’s leading supplier of lead-acid batteries, with a 36-percent share of the market. Its other divisions are Building Efficiency, which makes heating, cooling, refrigeration and security systems, and Automotive Experience, which makes components and electronics for car interiors.
The company operates more than 50 manufacturing, distribution and recycling facilities around the world. The Power Solutions division accounted for approximately 14 percent of Johnson Controls’ sales in 2012, according to its latest quarterly fact sheet.
Johnson reported its latest quarterly results on January 18. In the fourth quarter, revenue was flat compared to a year ago, at $10.4 billion. However, net income fell to $0.52 a share from $0.62 in the first quarter of 2012. That was largely due to a 50-percent decline in profits for the Automotive Experience division. Power Solutions sales rose 4 percent, to $1.7 billion. The division saw higher sales of batteries for new vehicles during the year, while shipments of aftermarket batteries declined.
The weak European economy continues to weigh on the company’s automotive business. It is currently restructuring its operations on the continent and is exploring selling its automotive electronics operations, according to a March 6 Fox Business article.
Power Solutions shares are up 6 percent in the past year and currently trade around $34.05.
EnerSys (NYSE:ENS) is a leading maker of industrial batteries for applications including motive power (batteries for lift trucks and material-handling equipment) and reserve power (for such clients as electricity generation facilities and data centers) and batteries for aerospace and defense uses. EnerSys has manufacturing and assembly facilities in 20 countries. It also makes chargers and other related equipment and recycles batteries for clients around the world.
In the fourth quarter, EnerSys’s revenue fell 3 percent, to $557.3 million from $574.2 million a year earlier. Net income rose 3.9 percent, to $0.80 a share from $0.77. Excluding one-time items, such as restructuring costs, EnerSys earned $0.88 a share, up from $0.80 a year ago and ahead of the company’s earlier forecast of $0.77 to $0.81.
EnerSys shares have gained 22 percent in the past year and currently trade around $42.65.
Exide Technologies (NASDAQ:XIDE) makes batteries and related systems for a range of applications, including cars, trucks, RVs, lawn and garden tools, forklifts and telecommunications and security systems.
The company recycles 30 million batteries a year at its eight recycling plants around the world and recovers 99 percent of the lead that arrives at these facilities, according to its website. It also reprocesses sulfuric acid.
The company reported its latest quarterly results on February 7. In its fiscal 2013 third quarter, Exide’s revenue rose 2.7 percent, to $804.9 million from $784.1 million a year ago. The company’s net loss was $0.20 a share, down from a profit of $0.84 a share. On an operating basis, which excludes restructuring and impairment charges, Exide earned $20.5 million, down from $30.3 million a year earlier.
The company has seen its cost of recovering spent batteries rise in the Americas and is earning lower profit margins on third-party lead sales. However, it reported that its spent-battery acquisition costs have declined since November 2012 and believes the trend “has continued into the early part of the fiscal fourth quarter.” Exide is also in the process of exiting the third-party lead-sales business.
Exide shares are down 5.7 percent in the past year and currently trade around $2.71.
Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.