Fundamental differences

The PGMs, or platinum-group metals, comprise platinum, palladium, rhodium, iridium, ruthenium and osmium. However, for the purposes of this article, we will refer to PGMs as platinum, palladium and rhodium, all of which are used in vehicle catalytic converters. Cutting tailpipe emissions from automotive combustion engines is the key demand driver for platinum, palladium and rhodium, accounting for 42 percent, 77 percent and 84 percent, respectively, of total demand in 2014.

ROBUST DEMAND

The combustion of fuel in a motor vehicle engine produces pollutant emissions of hydrocarbons (HC), nitrogen oxide (NOX), carbon monoxide (CO) and particulate matter. Platinum is particularly effective at catalyzing the oxidation of CO and HC under oxygen-rich conditions, so it has been the metal of choice for diesel engines. Platinum and palladium are equally effective under the conditions found in a gasoline engine, where a balance exists between the oxidants and reductants in the exhaust gas.

Owing to its lower price, palladium steadily has replaced platinum in gasoline engines since the 1990s. The cleanup and reduction of sulphur in diesel has, since 2006, allowed palladium to be used in diesel catalytic converters, and the metal now makes up about 30 percent of PGMs used in diesel cars, while rhodium is used specifically to catalyze the reduction of NOX to nitrogen in gasoline and some diesel powertrains.

PGMs have similar physical and chemical properties and tend to occur together in the same mineral deposit. Mine supply of PGMs from South Africa is recovering after the biggest labor strike in the metals’ history during 2014. Global PGM mine production in 2014 fell by 13.8 percent from 13.7 million ounces and is projected to be up 11.6 percent in 2015, which is still half-a-million ounces down compared with prestrike levels of production.

However, platinum and palladium prices fell to levels not seen since the financial crisis. As a result, mining companies have reined in capital, cut costs and delayed projects. However, while cuts to supply have been announced, these account for only 3.8 percent of annual platinum output as of late 2015.

PGM demand was robust in 2015. Euro 6 emissions legislation has led to higher metal loadings per car and has been phased in from 2014 and applied to all new cars from September 2015. This, coupled with higher vehicles sales in Europe, China and the U.S., is forecast to lift automotive PGM demand requirements by 3.3 percent to 11.9 million ounces for the year.

Low gasoline prices and interest rates and higher consumer confidence and vehicle ages continue to motivate the U.S. car market, where sales were up by 16 percent in September 2015 year on year. Car sales also are continuing to recover in Western Europe, rising by just more than 9 percent in the same month.

In China, sales picked up only slightly, increasing by 2.1 percent year on year in September 2015, after three months of negative year-on-year growth in sales. The Chinese government cut the vehicle purchase tax in half for cars with engines of 1.6 liters or smaller, effective from Oct. 1, 2015, until the end of 2016, and this should boost sales of smaller cars.

SCANDAL’S IMPACT

The diesel emissions scandal that began with Volkswagen vehicles sold in the U.S. and expanded to include some Audi and Porsche models involved software that manipulated engine and aftertreatment operation to meet NOX limits under U.S. Tier 2 emissions legislation only under test conditions. The scandal was publicized Sept. 18, 2015, and reportedly affects 11 million diesel cars globally. The prospect of reducing diesel car share, particularly in Europe, affected platinum prices, which fell from nearly $1,000 per ounce to below $900 per ounce by early October.

The possibility that manufacturers and consumers would switch from diesel to gasoline engines led to the outperformance of palladium relative to platinum. The platinum-palladium price ratio was 1.65:1 before the scandal broke and dropped to 1.30:1 by early October. The ratio has recovered to 1.5:1 at the time this article was written in mid-November 2015, as it generally is thought that platinum was oversold based on the economics of supply.

NEAR BALANCE

“While long-term fundamentals for PGMs are positive, in the near term, it is difficult to see a meaningful recovery in PGM prices,” says Beresford Clarke, managing director and head of research of SFA (Oxford), Oxford, England. “Industrial demand buying grows steadily, but the platinum and rhodium markets are becoming closely balanced. Palladium prices, meanwhile, remain closely correlated to the macroeconomic fortunes of China.”

Oliver Krestin, managing director, Duesmann & Hensel Recycling, Aschaffenburg, Germany, says, “Mines are not the sole supply of PGMs: In 2014 secondary production contributed around 30 percent of gross global demand from the recovery of platinum, palladium and rhodium. Compared to primary production, recycling plays an important role in reducing the environmental footprint of global PGM production.”

“Mines are not the sole supply of PGMs: In 2014 secondary production contributed around 30 percent of gross global demand from the recovery of platinum, palladium and rhodium." – Oliver Krestin, Duesmann & Hensel Recycling

The recovery of PGMs from end-of-life vehicles (ELVs) has become a flourishing industry that began in Europe and the U.S. in the second half of the 1980s and has since spread globally.

Beginning with collection centers, such as wrecking yards and scrap metal yards, a lengthy process is required before PGMs are recovered from spent catalytic converters. The process involves many players, from small independent collectors to medium and large organized collector chains, up to companies specializing in the mechanical processing and sampling of the material, and, eventually, to smelters such as Duesmann & Hensel Recycling.

Although the industrial process implemented by companies is complex and lengthy, it is extremely effective because roughly 98 percent of the PGMs contained in spent autocatalysts are recovered and returned to market for a variety of different applications.

PGM CHALLENGES

As technology progresses rapidly and companies recycling spent catalytic converters have developed their own processes over time, autocatalyst producers are confronted with many challenges that also will impact the recycling industry.

In an effort to reduce global pollution, legislators worldwide have set and are still setting ambitious objectives for the automotive industry. To meet these objectives, state-of-the-art technology that combines the catalyzing power of PGMs and new materials such as silicon carbide (SiC), alumina titanate (ATi) and advanced cordierite will be needed.

New ad-hoc treatment technologies likely will be required to allow for the sustainable and efficient recovery of PGMs from substrates because these materials behave differently than “typical cordierite,” which has been the main substrate used so far for autocatalytic converters.

These challenges combine with those of the current market situation—where prices are very depressed and material also is physically lacking. This shortage of material has arisen because the recent economic crisis in many developed countries has led to fewer cars being dismantled and, consequently, to a smaller number of spent catalysts currently being available. In addition, lower prices have made some dealers reluctant to sell their material, particularly those who, having collected a large volume of spent catalysts, faced a sudden drop in price and were left with stocks worth less than their initial purchase prices.

MINIMIZING RISK

A strong recycling industry has the financial tools to manage these risks and minimize the impact of fluctuations. Hedging (or selling forward) PGMs presumed to be contained in the spent autocatalysts is a common practice for any reputable company involved in the recovery of precious metals, making it possible to purchase catalytic converters under almost any circumstances. Prices also are transparent because they reflect either the a.m. or p.m. London or New York benchmark, in the case of platinum and palladium, and can be documented in any case as far as rhodium, which has a spot price, is concerned.

Another aspect to the decreasing quota of spent catalysts in collection centers is the so-called ‘ELV export practice’, where a significant number of ELVs do not end up in the same country in which they were initially purchased and driven but rather are exported to developing countries. This leads to a reduction in the amount of available recyclable items, including spent catalysts, and, despite legislation to address this problem, a common solution appears to be difficult to find. The fact that many autocatalysts end up far away from their point of origin also has presented some logistical challenges for the recycling industry, which is being forced to pursue the spent catalysts worldwide.

“Despite harsh market conditions affecting both prices and materials, we are still convinced that autocatalyst recycling is an environmentally, economically and socially sustainable business, contributing to the preservation of rare and strategic resources and the creation of skilled jobs and wealth,” Krestin says.

This article was prepared by Duesmann & Hensel Recycling, Aschaffenburg, Germany, and SFA (Oxford), Oxford, England. Duesmann & Hensel Recycling is an international catalytic converter recycler, offering a full range of precious metal recycling services. SFA (Oxford) is an authority on the platinum group metals market.