Automative battery makers feel the heat as lead prices spiral

The automotive battery makers feel that wild fluctuations in lead prices make it tough for the industry to plan pricing of the product for a medium term.

It is estimated that the Indian battery industry consumes about 30,000 tonnes of lead a year. Leading automotive battery makers like Exide, Amara Raja and TAFE Power Source and Amco Batteries source lead only from Australia.

While rising lead prices impact both the industrial battery segment and automotive battery segment, its impact on the latter is more pronounced as it is estimated at Rs 1,500 crore per annum. The industrial battery segment is about Rs 800 crore.

Jayashree Venkatraman, director, Tractors and Farm Equipment (Tafe Ltd), said that the prices of lead had spiralled to $ 1,350 per tonne in the last three months.

Gopal Mahadevan, chief financial officer of Amara Raja, said that the price of lead had risen to a staggering $1,475 a tonne two months ago while the present price was $1,175 a tonne. "They have risen three times from $450 a tonne in 2003," he said.

She pointed out that sourcing lead from Malaysia and China as an alternative choice was not advisable since the quality was an area of serious concern though these automative battery companies would meet strict quality standards while supplying to vehicle makers like Tata's, Ashok Leyland, TAFE, Maruti, Toyota, Ford, Mahindra and Mahindra and Hyundai among others.

The reason the battery industry is worried over the spiralling prices is that lead accounts for 60 to 70 per cent of the total material cost and, therefore, would have a large impact on the industry as well as consumers.

"At Amara Raja, in such a scenario, we try to bring in operational efficiency by cutting costs as the entire rise in lead prices cannot be absorbed by the company alone and only a part of the burden can be transferred to the consumer," said Mahadevan.

In the case of original equipment manufacturers, the automotive battery makers can pass on the price escalation to its original equipment contracts as such an availability is present in the contract.

It is only the replacement market, where the automotive battery companies find it tough to transfer the price rise. As it is in this segment, it is customer who directly purchases batteries and is highly price sensitive.