Revved up demand

As we enter 2018, demand for platinum, palladium and rhodium (platinum group metals, or PGMs) coming from recycled catalytic converters has never been stronger. It is estimated that up to 30 percent of PGMs will come from the recycling industry by 2021.

On the supply side, many factors influence available stock for PGMs recycling. This article will explore what is shaping the current and future market as it relates to the supply and demand for recycled PGMs.

Production shortages

Although recycled PGMs only account for roughly one-quarter of all available stocks on a yearly basis, demand is exceptionally strong because it is considerably less expensive to recover precious metals from spent auto catalysts than it is to pull virgin material out of the ground. Additionally, mined precious metals are not simply purchased at the spot market price. They are most often purchased above spot market to ensure timely delivery of a resource that has been in a consistent state of shortage for the last decade. This makes recycled PGMs even more sought after as they can be purchased at a discount to mined metals.

These shortages are particularly evident looking at platinum and palladium. According to the “2017 PGM Market Report” from Johnson Matthey, throughout the last six years, platinum has averaged a global shortage of 346,600 ounces, while the shortage of palladium was 806,300 ounces. These shortages highlight the need for auto catalyst recycling.

Recycled platinum contributes 20 percent on average to the total net stock, while recycled palladium contributes 30 percent on average. With demand growing at a rate of 2 percent annually moving toward 2021, there is no slowing down. Recycled PGMs will be a small part of the solution, but they will be very sought after.

Cost curves

It may come as a big surprise that it is more than 10 times less expensive to recover PGMs from spent catalysts than it is to mine them. For example, the average global cost to mine one ounce of platinum from the ground was $932 in 2015, according to Statista, www.statista.com/statistics/418242/average-costs-of- platinum-production-globally-by-region. This is huge considering the average spot price for platinum in 2015 was $1,053 and $988 in 2016, according to Kitco.

Remember, with more than 75 percent of mined PGMs stocks coming in at above spot price, mining companies do not have much profit margin. The average spot market price for platinum in 2017 (as of Nov. 27) has been $952, and production costs certainly have not decreased in the last three years. (No data were available to calculate the mining cost for 2017 when writing this article.)

This is in stark contrast with the cost to recover 1 ounce of platinum from recycled auto catalysts, which is more than 10 times less expensive, according to our 20 years of auto catalyst refining experience.

When you think about the challenges facing mining operations, it only stands to reason that recycling precious metals takes a lot less time and energy. The real challenge facing recyclers of auto catalysts is having enough consistent volume in scrap converters to make up the shortfall from the mining industry.

Autocat generation

In North America, we can roughly estimate that for every new vehicle sold, 1.5 scrap converters theoretically become available. That is if you believe in the trickle-down effect. If a new car is sold, somewhere down the line, an end-of-life vehicle (ELV) is born. Presently, we are seeing cars ranging from 10 to 15 years old reaching scrap yards. These vehicles typically have more than one converter on them, giving us the 1.5 figure.

If we are looking at just the United States, more than 13.1 million new light vehicles were sold in 2016. Using the trickle-down model, roughly 19.7 million scrap converters would have been available for recycling, contributing 348,001 troy ounces of platinum, 986,000 troy ounces of palladium and 102,130 troy ounces of rhodium. The United States represents 30 percent of globally recovered platinum, 50 percent of palladium and 30 percent of rhodium from recycled auto catalysts. These figures should really pique the interest of anyone working in the steel recycling business.

Favoring palladium

An interesting trend to note in auto catalyst recycling is that the industry is seeing the loading of precious metals change in favor of palladium. This accounts for the larger shortfall in available palladium stock globally. Johnson Matthey recorded a global palladium shortage of 163,000 troy ounces in 2016 and was anticipating a shortfall of 792,000 troy ounces in 2017. This forecast was born out in 2017, as there was a sharp rise in metal lease rates as demand began to significantly outweigh physical stocks.

Catalyst loading in gasoline engine exhaust systems became palladium rich in the midpart of the last decade, especially among automobile producers based in North America.

Interestingly, platinum and palladium can be inversely loaded in auto catalysts to create the same effect on cleaning greenhouse gas emissions. That is to say, you can either have more platinum than palladium or more palladium than platinum in respective measures to create the same catalyst effect. Once this fact was established, all the major North American automakers loaded more palladium into their catalysts as it was 78 percent less expensive per ounce than platinum. In 2005 platinum averaged $896 per ounce, and palladium averaged $201 per ounce.

With demand growing at a rate of 2 percent annually moving toward 2021, there is no slowing down. Recycled PGMs will be a small part of the solution, but they will be very sought after.

Even with price volatility in the proceeding decade, palladium historically has been sold at a great discount to platinum. The proof is in the average yield of precious metals per metric ton of auto catalysts harvested in North America. To illustrate, I will use the average North American ounce per metric ton yields of 17 ounces of platinum, 51 ounces of palladium and 6 ounces of rhodium. Or, simply stated, for every ounce of platinum in North American auto catalysts, you can expect roughly 3 ounces or more of palladium.

These PGMs loadings have held true in North America up to present day. However, now that palladium has replaced platinum as the king of the mountain in the price per ounce department, it will be interesting to see what the auto manufacturing sector does going forward.

The ferrous scrap connection

While future loadings of auto catalysts remain to be seen, we still need to examine why more ounces of PGMs are not being produced from spent auto catalysts globally. One of the larger factors explaining why we have not seen more precious metals recovered from ELVs is that the price of steel from auto hulks has decreased by more than two-thirds in the last two years, while sales of passenger vehicles have increased. We can deduce a couple of things. One, older cars are not becoming ELVs as frequently because of the vast reduction in scrap prices. Two, some hoarding of scrap steel and catalytic converters is occurring because of the deflated metal prices. Business owners are hoping metal prices will improve to levels seen in 2014 to offset losses.

From the perspective of converter value, however, we already are past the 2014 per-can averages. With palladium pricing overtaking that of platinum, the average per unit values for converters are now stronger than in 2014. This will encourage the hoarders to start liquidating stock, but only if they realize it is important to look more at the palladium value, as scrap yard owners have been conditioned to react to higher platinum prices. Even if this hoarded stock does enter the market, it will not substantially affect global suppliers.

Growing demand

The real takeaway from all of this is that the global need for PGMs is growing, and demand for the PGMs recovered from catalytic converter recycling is huge. The bulk of the value from converters is given directly to the seller, namely the scrap yard or core buyer. Catalytic converter buyers that have a good source of buying information can expect to make anywhere from 15 percent to 30 percent profit buying and reselling materials to a converter processor/refiner.

Traditionally, scrap yards have stayed away from purchasing catalytic converters because of the potential downside risk if they have little purchasing information or knowledge. While yards that decommission ELVs profit from the converters they dismantle, they still might shy away from purchasing converters because of gaps in their knowledge and individual state buying restrictions.

With palladium pricing overtaking that of platinum, the average per unit values for converters are now stronger than in 2014.

Fortunately, that is all changing. As with everything in our lives, technology is making advances in the converter recycling industry. Some converter companies are making it easy to purchase converters and send them off to be refined. If your company presently is selling catalytic converter material, you should ask your present buyer what tools are available for you to start purchasing. What other metal in the recycling industry can you expect a 15 percent or better return?

Demand for PGMs is stronger than it has ever been as emerging economy countries and First World nations improve their emissions standards. Shortfalls in PGMs stocks have been ongoing for a decade. Mining operations will not be able to meet the needs of the market, and it will be up to the recycling industry to try to make up the shortfall in supply.

Cliff Hope is senior account manager at PMR Inc., http://pmrcc.com/en. The catalytic converter processing company has operations in Delray Beach, Florida; Boisbriand, Quebec; and Mississauga, Ontario.