The universal appeal of soaking up rays is one of the inspirations behind the World Gold Council’s launch of a $55 million campaign that promotes the association of their metal with the sun. Consumers will be encouraged to “glow with gold.” But despite the desire to position gold as the metal of warmth, as the news release puts it, there is no escaping the fact that it is the platinum group metals (PGMs) that continue to be the hot ones.
Gold prices stagnated at around $280 in 2000 and, more recently, threatened to hit that psychologically important $250 floor (a floor that, before 1997, was $300). By contrast, the volatility of the PGMs was marked by the price of palladium shooting up 250% between January 2000-when it was going for as low as $433-to January 2001, when it reached a record high of $1,094 an ounce. With that kind of price incentive there was a noticeable jump in recycled PGMs, according to a survey recently released by Johnson Matthey, a multi-national advanced materials technology company. The British-based corporation reports that automotive catalysts which otherwise might not have been collected, were instead mined for PGMs, resulting in a 25 percent increase in palladium recovery in North America.
But, disillusioned by the cost and inconsistent availability of palladium, the automotive and electronics industries have been looking at cheaper and more reliable alternatives. “This is probably going to be the year for platinum,” observes Henry E. Hilliard, commodities specialist for the United States Geological Survey (USGS), Reston, Va. Averaging $535 an ounce in 2000, platinum has been trading in the plus-or-minus-$600 range for months now.
Silver, the other white metal, has nowhere to go but up, according to a report by Gold Fields Mineral Services, Ltd. (GFMS), London. Despite a 5% increase in demand, prices dropped 5%, averaging about $5 an ounce for most of 2000.
Ultimately, no matter which metal appropriates the sun as its symbol, the clouds generated by the economic slowdown hang over them all.
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Computer Makers Hit Escape Key |
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The price jump for palladium has been a boon not only to catalyst recyclers but also for electronics recyclers, according to Steve Skurnac, president of Micro Metallics Corp., Roseville, Calif. "What we're finding right now is appreciable amounts of palladium that were put into computers when the metal was $110 an ounce," he notes. "That equipment is now making its way into the recycle stream." Skurnac says he expects the harvesting of precious metals from computers to be viable for at least the next five years, "until manufacturers spec it right out of the product." For a number of reasons, manufacturers are using less and less precious metals in electronics. There is no longer as much concern about long-term product viability, says Larry Manziek, executive director, International Precious Metals Institute (IPMI), Pensacola, FL. "Now we buy a nine-dollar phone and throw it away." High prices have prompted searches for alternative metals, says Gordon Bassett, general manager, precious metal marketing, Johnson Matthey, Wayne, Pa., who is seeing a switch from palladium to nickel in multi-layer capacitors. According to Bill LeRoy, director of sales and marketing for ECS Refining, Santa Clara, Calif., "As the technology advances, things gets smaller, which means there's less surface area for the gold or the silver or the palladium-whatever it might be. And, they also got better at putting it only where they needed it. Years ago, they plated the whole thing with precious metal, because that's the only way they knew how to do it. Then, somebody said, 'Ah, I can put a stripe on it,' and your usage dropped, and then somebody said, 'Well, I can put a spot on it,' and so it dropped further. Then it became a smaller spot." Ronald Hemmings, vice president of operations, Martin Metals, Los Angeles, says that because of the inconsistency in precious metal content from unit to unit, his company has little interest in processing personal computers. Until manufacturers start providing an inventory of the precious metal content of their respective machines, he says, "it is not feasible for the individual to have to go through all the analytical work of assaying every unit that's out there to find out what the value is." But both LeRoy and Skurnac say they don't rely on the precious metal content of electronic devices alone to turn a profit. They are among those precious metal recyclers who have evolved into participants in the growing field of computer disposal. Asset recovery-pulling out reusable components and putting them back in the marketplace-and assured destruction to address security and liability concerns are among the range of services these firms offer. Each acknowledges the concern expressed by Hemmings that computer manufacturers have been slow to address the end-of-life issues connected with their products. "All of the conferences and all of the round-table discussions about this problem have focused on potential legislation regarding electronic scrap, which is forcing manufacturers to deal with it," Skurnac says. Individual states and municipalities are passing laws banning monitors and other computer parts from landfills. Skurnac notes his participation in an ongoing national dialogue hosted by the Environmental Protection Agency, in which manufacturers, government representatives, recyclers and environmentalists are attempting to develop a proposed infrastructure for a systematic "cradle to grave" program. "Everybody's searching for that combination of how do we make this work and who picks up the buck," observes LeRoy, noting that American homes have closets filling up with obsolete electronics, while businesses too small to employ asset managers have rooms where vintage components are collecting. Getting those items into the recycle stream is the challenge. "Somebody's going to have to absorb the cost of the end of life of those electronics, and right now, the industry is sorting itself out as to who that is going to be," says LeRoy. "There really is no IBM of electronic recycling, no monster driving force out there doing this, so what you've got is a lot of regional or multi-regional companies like ECS looking to expand, to cover a more national scope." |
VEHICLES SLOWING DOWN
Already, precious metals are demonstrating a reaction to the softening economy.
By mid-May, palladium dropped to $630 an ounce. Some of the price decline is attributable to the Russians releasing large shipments of palladium earlier this year, says Ellen Zadoff, market research manager for Johnson Matthey Inc., Wayne, Pa. But, she adds, the fall is also a product of the overall downturn.
“In these first few months of 2001 the electronics market is just totally off,” she notes. “Not only is there lackluster demand from consumers, but the manufacturers came into the year with a very big inventory hangover for those chief parts that use palladium, namely multi-layer ceramic capacitors. So you’ve got a big segment that’s basically sitting out the market. And, you’ve got auto manufacturers whose demand is way down for cars and trucks.”
Some recyclers are seeing evidence of the slowdown. Bill LeRoy, director of sales and marketing for ECS Refining, Santa Clara, Calif., which has plants in California and Texas, says he can tell that electronics fabrication is off by the “severe downturn” in scrap being generated as a byproduct of manufacturing.
“We also do recycling from the end-of-life point of view, and obviously that hasn’t caught up yet, nor do we anticipate that it really will,” he says.
Last year’s inflated market for PGMs, particularly palladium, was a bonanza for the scrap industry, observes Becky T. Berube, vice president of marketing and precious metal coordinator for United Catalyst Corp., Providence, R.I. Even with the dropping-or, as she puts it, “correcting”-street price, spent automotive catalysts will continue to be what she calls a “lucrative source of revenue.”
But Zadoff is wondering if recycling levels will continue despite the drop in palladium prices. “They’re still quite high in historic terms, so it will be interesting to see exactly what the price point is for some of these smaller collectors that didn’t previously dismantle catalysts. Did this wake them up so that they will continue collecting, or will they say, ‘Eh, it’s not important enough anymore?’” Until the price spike, she explains, uncollected catalysts got crushed with the rest of the vehicle.
PLATINUM AND PGMs
With the help of rhodium, platinum will be substituting for her often-indisposed sister metal, palladium, in catalytic converters. Automakers are at work adjusting their PGM cocktails to meet emission standards that would have been best addressed by palladium. However, that metal has been subject to inexplicably erratic exports by its chief producer, Russia. In response, frustrated manufacturers cut back their demand for palladium last year by 5%, according to Johnson Matthey, which forecasts that palladium will trade in the range of $550 to $750 for the rest of the year.
For most vehicles it is not a matter of platinum or palladium, but rather a shift in the ratio of metals within the catalyst, according to CPM Group, a New York-based commodities research company.
In addition to its stand-in duties, platinum was already slated to be the featured metal in diesel engine catalysts, according to Gordon Bassett, Johnson Matthey’s general manager of precious metal marketing. Regulations governing emission standards for diesel cars and heavy trucks are taking effect here and abroad, he says, explaining, “Platinum is a better catalyst for diesels than palladium, because palladium tends to get poisoned.”
Platinum is also a key ingredient in automotive spark plugs and sensors. Moreover, about 90% of all computer hard disks are incorporating platinum to improve memory.
Still over the horizon are fuel cells, which are devices that run on hydrogen and generate electric power using platinum catalysts. General Motors Corp, Detroit, has said it will have a fuel cell vehicle in showrooms by the end of the decade.
The U.S. has only one PGM mine-Stillwater-located near Nye, Mont. It produced more than 13 metric tons of platinum and palladium last year. According to USGS statistics, 70 metric tons of new and old PGM scrap were recovered domestically last year.
GOLD
Investors stocked up on coins in 1999 in anticipation of the End of the World as We Know It, aka Y2K, but despite some brief spikes from those sales, the old millennium ended with gold at its lowest average price in more than 20 years, at just under $279 an ounce. The year 2000 was hardly better. GFMS reports that, not surprisingly, coin fabrication collapsed from 133 to 46 metric tons last year as the former nervous Nellies disinvested and flooded the market with their prior purchases.
Citing GFMS’s Gold Survey 2001, George Milling-Stanley, manager of gold market analysis for the World Gold Council, London, says the 611 metric tons of old gold scrap generated globally last year is equivalent to about one-fifth the size of each year’s new mine production. With final figures yet to be released, USGS put domestic recycling at about 140 metric tons (including old and new scrap). Gold coins, Milling-Stanley points out, are not included in some scrap figures.
Gold Recycling-A Materials Flow Study, recently completed by USGS commodities specialist Earle B. Amey, is an attempt to track domestic production and use of gold scrap as it makes its way through the system. According to Amey, scrap, which has been relatively stable in recent years, could enter the recycling stream in increasing amounts if:
(1) Prices rose as a result of a decline in world production;
(2) More efficient, centralized scrap collection centers were established;
(3) Rapidly industrializing nations demand more contemporary jewelry designs and recycle older fashions.
In the Gold Survey 2001, GFMS posited a number of possibilities for prices moving either up or down depending on the economy and investor activity, among other factors, but said, “the downside risk is arguably greater.” Unable to control prices, gold producers do what they can to spare expenses, observes Milling-Stanley. “In response to the lower prices, you’ve seen mining companies become much more efficient; they’ve lowered their mining costs dramatically in recent years.”
SILVER
If it took a price jump of hundreds of dollars to lure more palladium into the marketplace, imagine how little silver gets coaxed out when the reward is as meager as $4.30 an ounce.
“If you’re just sitting on a precious metal for investment purposes, probably the best thing to do is turn it back into a bullion grade bar or coin,” advises Larry Manziek of the International Precious Metals Institute (IPMI), Pensacola, Fla. “Once it’s in a pure form, you can easily market it if the metal prices take a real sharp spike up. If it’s sitting in a drum, there might be a six-month turnaround time before the metal can be processed and made available.”
“He’s right. I’ll do something about it this year,” vows Beverly Bremer from her silver shop in Atlanta, Ga., where she stocks 2,000 patterns of new and vintage sterling. Bremer, who advertises heavily in decorating and lifestyle magazines (“Missing a piece of your pattern?”), has an inventory in excess of about 350,000 pieces. The discarded knife handles, damaged spoons and other implements she tosses aside have been collecting for years in buckets and barrels and are starting to represent a significant storage problem. “I don’t have a refiner nearby,” she laments.
That wouldn’t be a problem for Replacements Ltd., located in Greensboro, N.C. Replacements is a pattern matching service which boasts in its advertising and on its Web site that it is the size of four football fields. The operation has its own refinery, says Liam Sullivan, manager of public relations. Sterling that cannot be repaired or transformed into a usable object is melted into bars and held for its silver value.
Some value. For yet another year, silver prices have been weakened by sales from above-ground stocks, including private disinvestment and official sector bullion sales, according to GFMS’s World Silver Survey 2001. Silver scrap generated rose 3% to more than 5,600 metric tons worldwide; about 1,600 of those tons were in the U.S., according to USGS.
Industrial consumption of silver was up 11%. Photography’s use of silver dipped 1.2%, but was still significantly high. As GFMS notes, photographic materials get recycled due to environmental requirements, not for silver value. One possible concern that has begun making its way into discussions of silver’s future is the potential impact of digital photography on silver usage.
Ultimately, reports GFMS, low silver prices were a product of the sluggish economy. GFMS held out the possibility of a rally this year, without naming specific price levels. Presumably, if they knew, they would be beach-bound.
As manufacturers jockey precious metal usage for optimum value and performance, they’ll no doubt be looking over their shoulders to keep an eye on the crouching bear market.
The author is a freelance writer based in Washington, D.C.
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Jewelry’s Economic Chokers |
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Even during an economic slump, a lot of people still have to buy cars and computers. However, outside of counties such as India, where jewelry is tied to cultural traditions relating to marriage, dowry and personal wealth, jewelry purchases are generally discretionary. The jewelry industry is bracing for the possibility of a drop in consumer spending at the same time that gold producers are trying to create new demand with their pricey campaign designed to promote the “emotional values of gold,” as one news release put it. With gold credit cards and golden oat cereals cluttering the market place, the industry is adopting the sun symbol as a brand in an effort to establish a distinct identity for its product says Rick Bannerot, manager, marketing USA, World Gold Council, London. Gold jewelry needs a shot in the arm. Sales have been inching up each year, but not at all in proportion to dropping prices. Platinum jewelry, on the other hand, has made steady inroads into world markets. Thanks in large part to its popularity in Japan and China, jewelry now accounts for slightly more than 50% of platinum usage. While catalytic converters still dominate platinum consumption in the U.S., the metal has captured a niche in the upscale bridal market. At Pampillonia Jewelers in the tony Chevy Chase section of Washington, D.C., the sales ratio of platinum engagement rings to gold is about 7 to 3, says Steve Pampillonia, adding that 10 years ago, the numbers were reversed. “In the last year-and-a-half, we’ve taken in platinum orders on the magnitude of 10 times more than before,” observes Nick Savarese, refining manager for Hoover & Strong, Richmond, Va. The mid-size precious metal company deals almost exclusively with jewelers, including Pampillonia. To maintain perspective on this phenomenon, it should be noted that, last year, about 88 or so metric tons of platinum went into the production of new jewelry worldwide, according to Johnson Matthey figures. That’s less than 15% of just the scrap that was generated by gold jewelry. The platinum industry has speculated that if the metal rises to more than $600 an ounce, the jewelry market in Asia, especially China, might suffer. Platinum is forecast to trade between $550 and $625 in the coming year. Last year, strong Chinese demand compensated for a sharp decline in Japanese spending, so that jewelry sales were only off by about 1%, according to British-based materials technology company Johnson Matthey. |
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