(Repeats MARCH 27 story. No change to text. The opinions
expressed here are those of the author, a columnist for
Reuters.)
By Andy Home
LONDON, March 28 (Reuters) - France's Recylex has just
announced the temporary closure of both its German lead smelter
and two battery-recycling plants, one in Germany and one in
France.
The decision is due to a "strong drop in demand, especially
in the automotive sector, in a context of sharply lower metal
prices," the company said.
It will surely not be the last lead producer to mothball its
production facilities.
Lead is umbilically tied to the automotive sector. Lead-acid
batteries account for around 80% of global usage of the metal.
And carmakers just about everywhere have halted their own
production lines due to the spread of the coronavirus and the
lockdowns on activity that have followed in its wake.
Virtually every industrial metal gets used in one form of
another in making planes, trains and automobiles.
Particularly the latter. Collapsing automotive production
and sales are generating a demand shock that is travelling up
the value chain through parts suppliers to metals fabricators
and on to metal producers such as Recylex.
CORE DEMAND DRIVER
Lead's dependence on carmaking activity is the highest of
any metal because the metal's toxic legacy has seen it
engineered out of other consumer products.
The lead-acid battery, however, remains the power source of
choice for internal combustion engines. Even most electric
vehicles use one for starting, lighting and ignition functions.
However, every other industrial metal has some exposure to
the automotive sector.
Carmakers focus' on light-weighting to meet ever tighter
environmental standards has been a core driver of aluminium
usage in recent years.
Just over a quarter of global aluminium demand comes from
the transport sector. The ratio is even higher in developed
countries, reaching 40% in the European Union, according to the
European Aluminium industry association.
A locked-down global automotive sector represents a 16
million-tonne hit to aluminium demand on an annualised basis.
Look no further to understand analysts' increasingly gloomy
prognosis for the light metal. Citi, for example, is forecasting
a 6% decline in consumption this year on the back of a
2.7-million tonne surplus. ("Metals Weekly", March 25, 2020).
Steel producers are similarly exposed with automotive
production accounting for 12% of global usage and other forms of
transport another 5%, according to the World Steel Association.
Copper goes into automotive motors, wiring, radiators,
connectors and brakes. Every internal combustion engine vehicle
uses around about 22.5 kg (50 lbs) of copper, while luxury cars
on average contain around 1,500 copper wires totaling about 1.6
km, according to the International Copper Study Group.
Transport accounts for around 13% of global copper demand, a
similar ratio, give or take a couple of percentage points, to
both zinc, which is used to galvanise steel body sheet, and
nickel.
Usage of metals such as copper and nickel in the automotive
sector is steadily increasing on the back of growing production
of hybrid and electric vehicles (EV), which need more copper for
electrical circuits and more nickel as an input for lithium-ion
battery technology.
But EV makers are no more insulated from the virus than
their internal combustion engine rivals, with Tesla and battery
partner Panasonic both slashing activity.
In terms of industrial metal markets, the automotive sector
has turned from hero to zero in the space of weeks.
DOUBLE BLOW
The demand shock emanating from the automotive sector comes
in two parts.
The first is the physical closure of car assembly lines
around the world.
Volkswagen, the world's largest car producer,
has closed just about all of its plants and is not making any
sales outside of China, according to Chief Executive Herbert
Diess.
General Motors, the No. 1 U.S. automaker, is planning
to keep its plants closed indefinitely and is moving into cash
preservation mode.
Fiat Chrysler Automobiles NV (FCA) has suspended
activity across its North American operations until next month.
Ford is hoping to restart some plants, simply to generate
cash.
The question, however, is whether anyone is going to buy its
pick-ups anyway.
Even if production can be restarted, sales are likely to
drop off a cliff-edge. The U.S. Labor Department reported an
eye-watering 3.3 million of new jobless claims last week,
dwarfing anything seen in the past. That's three million people
whose last thought right now is buying a new car.
Car sales were already weak globally. The coronavirus will
cause them to implode, a second tail-wind demand hit for metals.
Moody's is now expecting global auto sales to plunge around
14% this year, compared with a previous forecast for a 2.5% drop
published in February. That's an indication of just how fast the
virus is changing the automotive landscape.
Sales are expected to drop by 21% in Western Europe this
year, by 15% in the United States and by 10% in China, the
world's largest car market by volume.
LIGHT AT THE END OF THE TUNNEL?
Moody's holds out the prospects of a sales rebound next
year, but the strength of any recovery will depend on both when
the virus peaks and when consumer sentiment troughs.
One ray of light is coming from China, which saw car sales
plunge 80% in February.
Car dealers in the country, which is ahead of the global
coronavirus curve, are now pulling out all the stops to try and
lure lockdown-weary customers back to the forecourts. The usual
heavy discounts are being accompanies by novelties such as a
free medical mask.
Beijing is also likely to try and engineer a recovery in a
key manufacturing sector through subsidies, a path that has
already been tried and tested in terms of encouraging people to
buy EVs rather than traditional vehicles.
Something similar may have to come from Western governments,
particularly those like Germany which also view their automotive
sector as a manufacturing pillar.
Indeed, there may even be an opportunity to mimic Chinese
policy by linking an automotive recovery stimulus to accelerated
EV usage.
That, however, is a question for tomorrow.
Today, much of the world's car industry is closed. And
that's very bad news indeed for demand for all industrial
metals.
(Editing by Mark Potter)