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MarketScreener Homepage  >  Equities  >  Korea Stock Exchange  >  Korea Zinc Company, Ltd.    A010130   KR7010130003

KOREA ZINC COMPANY, LTD.

(A010130)
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Lead gets lifeline as essential industries energise battery demand

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06/24/2020 | 06:00am EDT
FILE PHOTO: The opening of NHS Nightingale Yorkshire and the Humber hospital in Harrogate, Britain amid the coronavirus disease (COVID-19) outbreak

(This June 23 has been corrected to remove reference to Ecobat, paragraph 4)

By Zandi Shabalala

Demand for lead-acid batteries from hospitals and food producers seeking more backup power during the coronavirus pandemic is helping battery and lead producers weather a collapse in orders from the auto sector. For high-quality lead producers such as Glencore's Britannia Refined Metals, Ecobat Technologies and others, the additional demand from customers outside the car industry has helped keep price discounts in check during the pandemic.

Industrial batteries account for 20-30% of global lead consumption, while auto batteries account for around 55%.

Industries deemed as essential during the pandemic, such as hospitals, food producers and supermarkets, are stocking up on batteries produced by companies such as EnerSys and GS Yuasa to power backup generators and uninterruptible power supply (UPS) systems.

A global move to working from home has also boosted demand from the technology firms who need to keep networks running.

Europe's largest lead producer Ecobat said its sales on the continent held steady in the first quarter, compared with an estimated 10% drop in the sector overall.

"You have had some rather divergent fortunes in battery sales. Industrial batteries have kept the wolf from the door," said David Summerfield, director of sales at UK-based Ecobat.

Sales were supported by new contracts for batteries, some for a few years, and higher demand from hospitals and telecommunications companies, which helped offset losses in the auto sector, he said.

Auto sales have plunged across the globe due to coronavirus-related restrictions, although manufacturers have started to ramp up production in recent weeks.

Also weighing on the auto sector are lockdowns, which have meant subdued demand from motorists for replacement batteries.

Wood Mackenzie estimates lead demand for industrial batteries will fall 3.6% this year to 2.63 million tonnes, while demand for auto batteries will drop 6.5% to 7.95 million tonnes.

"The situation for some battery makers would have been much worse without industrial demand," said Wood Mackenzie lead analyst Farid Ahmed, who expects total lead demand this year to fall 5.9% to 12.14 million tonnes.

Declining demand has pushed prices benchmark prices for lead down 8% this year.

They are starting to stabilise at around $1,760 a tonne, although BMO Capital Markets expects prices to average $1,700 a tonne in the fourth quarter even with a marginal recovery in demand.

Greater use for energy storage fuelled 3.5% annual growth in demand for industrial batteries over 2011-2019, Ahmed said.

During the pandemic, U.S.-based Exide Technologies said it sold 7,000 batteries to one hospital in Europe alone.

"Due to the Covid19 situation, we are experiencing a temporary increase in inquiries and quotations in the area of stationary, UPS applications, used for example in the healthcare sector, telecommunications or even in the retail sector (food industry)," Exide said in an emailed statement.

Japan's GS Yuasa said it supplied batteries to London's Nightingale hospital - one of a handful of hospitals in the UK built within weeks to cope with coronavirus patients - but did not give figures.

Supermarkets require extra power backup as they have expanded services and shifted more goods around during the pandemic, while a surge in the numbers of people working from home has spurred rising demand for cloud computing services.

"This recession has turned the market on its head because industrial demand is doing well, whereas in a typical downturn that would be the first area which would fall away," said CRU Group analyst Neil Hawkes.

Those battery makers that have relied too heavily on the car industry have been caught out.

The German arm of French lead producer Recylex was forced into insolvency last month after the auto sector shut down, while Clarios, the world's biggest automotive battery maker, had its credit ratings downgraded by both Moody's and Fitch due to the business impact of the coronavirus.

Fitch said weaker market conditions facing Clarios were expected to last for at least the next two years.

(Reporting by Zandi Shabalala; editing by Pratima Desai and Susan Fenton)

Stocks mentioned in the article
ChangeLast1st jan.
ENERSYS 3.47% 67.48 Delayed Quote.-12.84%
GS HOLDINGS LIMITED 5.00% 0.525 End-of-day quote.-28.57%
GS YUASA CORPORATION 1.43% 1846 End-of-day quote.-21.95%
KOREA ZINC COMPANY, LTD. -1.99% 369000 End-of-day quote.-13.18%
UNITED PARCEL SERVICE 3.36% 119.21 Delayed Quote.1.84%
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Financials
Sales 2020 6 610 B 5,49 B 5,49 B
Net income 2020 602 B 0,50 B 0,50 B
Net cash 2020 1 991 B 1,65 B 1,65 B
P/E ratio 2020 11,4x
Yield 2020 3,78%
Capitalization 6 522 B 5 426 M 5 413 M
EV / Sales 2019
EV / Sales 2020 986x
Nbr of Employees -
Free-Float 45,2%
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Mean consensus BUY
Number of Analysts 17
Average target price 520 882,35 KRW
Last Close Price 369 000,00 KRW
Spread / Highest target 65,3%
Spread / Average Target 41,2%
Spread / Lowest Target 8,40%
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Managers
NameTitle
Je-Joong Lee Vice Chairman & Chief Executive Officer
Yoon-Beom Choi President & Director
Chang-Geun Choi Chairman
Won-Woo Nam Head-Finance & Accounting
Byung-Moon Kim Senior MD & Head-Technology Research Institute
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