Supply tightening lead-acid batteries are facing price increases

Yesterday, the media reported that Shanghai Johnson Controls International Battery Co., Ltd., a wholly-owned subsidiary of Johnson Controls Inc. (NYSE:JCI), the world's largest lead acid battery manufacturer, has suspended production for investigation due to suspected lead pollution. This is another pollution-related company that has stopped production since the lead-acid battery industry was rectified this year.

Up to now, the lead-acid battery company's environmental inspections have led to more than 80% of domestic lead-acid battery companies are shut down, which led to a substantial decline in production capacity so that the supply of lead-acid batteries tends to be tight. Some analysts believe that the shortage of supply leads to a new wave of price increase for lead-acid batteries. The industry leader with financial strength will benefit the most. In addition, companies that produce automobile-start batteries and electric bicycle batteries have stronger bargaining power for downstream companies.

The industry is bad for anti-benefits related to listed companies due to frequent domestic lead pollution incidents, and lead-acid battery factory is recognized as the leading culprit lead pollution, Ministry of Environmental Protection, National Development and Reform Commission and other nine ministries jointly launched in May this year, the largest ever The country’s lead-acid battery industry has undergone major rectification, and almost all manufacturers in Guangdong, Zhejiang, and Anhui have been required to suspend production for rectification. In addition, according to the forthcoming "Lead-Acid Battery Access Regulations" issued by the Ministry of Industry and Information Technology, two-thirds of the industry's backward production capacity will be eliminated in the next three years, and lead-acid battery manufacturers will be reduced from 2,000 to no more than 300.

In the secondary market, the most obvious response is the lead camel battery industry leading camel shares. From being abandoned to being buoyed, camel shares have gone through two battles. In May of this year, the Ministry of Environmental Protection began to rectify the lead-acid battery industry through the blood lead incident. The Camel shares are therefore deeply trapped in the "environmental protection door." On June 2, camel shares landed on the Shanghai Stock Exchange with an issue price of 18.60 yuan and a issuance price multiple of 30 times. However, the transaction broke the first day of trading, falling 5.65%, and then further down the road to 15.98 yuan on the next five trading days. However, the 15.98 yuan on June 10 became the trough before the camel stocks soared. Afterwards, camel shares have soared. After the first daily limit of the Camel shares on July 13, the stock price started to rise. As of September 15th, it closed at 26.44 yuan, during which time it took out 3 daily limit boards, which was a low of 15.98 yuan or nearly 70%.

Industry sources pointed out that due to lead pollution incidents, this year's lead battery industry will face changes and washups, and the industry valuation of low-yielding and leading companies camel stocks will benefit in the medium to long-term. From this point of view, although the “Environmental Protection Door” incident in May had a short-term negative impact on camel shares, with the improvement of the entire industry after the discouragement, SMEs have been able to afford a large amount of environmental protection costs and have been eliminated. Leading players in the industry such as camel stocks will usher in improved performance.

Industry integration will form an oligopolistic market Senior researcher Ji Ling Investment Ma Yan said in an interview with reporters that lead-acid batteries actually belong to the sunset industry, the industry does not exist technical threshold, mainly limited by the country's environmental protection policy. One obvious fact is that the lead-acid battery companies in Europe and the United States have transferred their industries to China. On the other hand, the most obvious characteristic of the domestic lead-acid battery industry is the low concentration of industries and the proliferation of SMEs, which has also brought a series of environmental issues.

According to industry association statistics, the government’s efforts to rectify the industry are unprecedented. Now that the production capacity for suspension of production accounts for about 60% of the total production capacity, the Ministry of Industry and Information Technology hopes that the industry will screen out 300 to 400 companies from the current 2,000 companies in the future.

Ma Yong believes that the large-scale industrial rectification will lead to a serious imbalance in the supply and demand of lead-acid batteries and thus bring about price increases. On the other hand, as the number of enterprises will be significantly reduced and industry barriers will be significantly increased, it will be beneficial for retained companies to increase their market share and profitability. As a result, the results of the rectification of China's lead-acid battery industry in the future will very likely form an oligopoly dominated by the current industry leader.

Different enterprises' price increase ability is significantly different. Orient Securities believes that with the arrival of the traditional consumption season of lead-acid batteries and the consolidation of supply-side industries, the price of lead-acid battery products in the fourth quarter is expected to continue to rise. However, due to the different negotiating capabilities of downstream customers, companies that produce different types of lead-acid battery products have significantly different price increases.

Qin Hong consultant analyst Qin Hong pointed out in an interview with reporters that lead-acid batteries cover a wide range of downstream industries, including communications, new energy storage, electric bicycles and car start-up fields. Qin Hong said that due to the direct face of a large number of downstream consumers, the manufacturers of lead-acid batteries for electric bicycles are the strongest among all lead-acid battery companies, followed by the manufacturers of automotive start-up batteries. After-sales maintenance needs accounted for more than 65% of the demand for vehicle start-up batteries. The worst bargaining power was for manufacturers of communication equipment backup power supplies that face only a limited number of telecom operators and telecom equipment manufacturers.

The survey data from the China Lead-Acid Battery Industry Association also supports this view. Statistical results show that the battery supply gap for electric bicycles is the largest, reaching about 40%, and the battery gap for automobile start-ups is about 20%, while the communication battery has no significant gap between supply and demand. Affected by the shortage of supply, the price of electric bicycle battery terminals has increased from 400 yuan/group to more than 700 yuan/group. As the demand for car batteries has entered a peak period since September, the price increase is expected to reach more than 5%.

Ma Yun said that considering the advancement of the industry consolidation process, the Matthew effect is increasing. In the secondary market, listed companies with financial strength and technological advantages will survive in this round of waves and reborn. Can focus on the industry's leading companies, camel shares, South are power, sail shares and shares of Sun Yang.

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