Precious little change

Making do with less seems to be the mantra in the precious metals market, especially when it comes to gold and silver.

“Everything is being made cheaper these days,” says Jay Brisson, buyer at Integrated Recycling Technologies (IRT), Monticello, Minnesota. “You have to accumulate more to get the same amount of gold.”

IRT is a major player in recycling motherboards, telecommunications equipment, servers, cellphones, power supplies, keyboards and other high-tech gear.

“Nothing has more gold in it,” Brisson says of the trend in electronic device manufacturing.

While the pickings are thinner, he says material is moving. However, Brisson adds, “It always could be better.”

Jim Taggart, CEO of ECS Refining, Santa Clara, California, says, “What used to be a $5 board is now a $2 or a $1 board. So you have to do more volume to get the same number of ounces and the same volume of material.”

Taggart, who has been in the business for 40 years, has seen the average amount of precious metals in electronic goods decline on an annual basis. “Over time they have been able to engineer precious metals out of products to lower the cost of the products and make them more efficient,” he adds.

Downsizing devices

Additionally, many electronic devices are getting smaller, which actually can call for the use of more precious metals in their manufacturing.

“What drives the market is the need for miniaturization in the product,” Taggart says. A TV, for example, has plenty of room on every circuit board. Even flat-screens are relatively spacious. But small devices, such as cellphones, must have a huge number of components, and so they are packed more closely together. Manufacturers are concerned about heat output and signal quality of the chip. This dictates using higher quality materials, like precious metals.

The amount of gold on a 2-inch-by-2-inch computer motherboard is quite different than that on a smaller chip, with one industry source saying 1 ton of smartphones contains 10 troy ounces of gold, while 200 laptops would yield 5 troy ounces of gold.

“We have to process a lot more material to get the same volume,” Taggart notes of the miniaturization of devices.

Securing that infeed material can be tough. As with ECS’ jet engine recycling business, when the company offers half the value for a unit than it offered a few months ago, the supply tends to dry up as sellers hope for a price rebound.

“All of the sudden, you have nothing to process as the market dries up,” he says.

Not only is less silver or gold present in each lot of electronic equipment, but the prices for these precious metals have done little to encourage people to rush out and sell their computing equipment. While not widespread, sources say large-lot sources may be sitting on stockpiles until prices look a bit brighter.

The good news, Taggart says, is that some traditional electronic equipment, such as coffee makers and ovens, now includes circuit boards and advanced electronics. Today, many kitchen appliances have memory and microprocessors built in. The SmartHome initiative, linking all sorts of electronics to the internet, is a growing market and promises to be a major factor as newer appliances age and are removed from service.

“It is not a large amount of precious metals but at least there is something there,” Taggart says.

For many in the recycling business, the absolute price of gold has little to do with the amount of material that flows into their operations. “We never find a major spike unless gold goes up $200 an ounce,” says Bill Rockett, vice president of M&K Recovery Group, North Andover, Massachusetts. “Things are pretty consistent.”

He says the amount of gold his company sees rarely fluctuates in a major way, adding that companies upgrading computers or changing their networks tend to move old equipment into the recycling stream rather than play around and speculate on the possibility of an uptick in gold’s price.

Recent prices

The silver and gold markets are well off their highs. In August, silver touched or tested the $20-per-ounce level several times. Even into the first couple of days in October, silver remained above $19 per ounce. Then it quickly dropped by 10 percent. By early November, silver was barely holding its nose above the $18 level. That is still a marked improvement over the December-2015-to-February-2016 time frame, when silver was puttering along in the $14-per-ounce area.

Gold followed a similar path. The spot price was as high as $1,360 per ounce in August and hung around in the $1,330 range into early October. Then it tanked. The November spot price was closer to $1,275 per ounce, with October being a particularly tough month for gold bugs, or those individuals bullish on gold. Gold did not crack $1,100 in December 2015. In January 2016, it moved above the $1,100 mark before reaching $1,225 in late February and spending most of the rest of the month between $1,222 and $1,240 per ounce.

In terms of activity in his area of the recycling business, Rockett places other precious metals, such as platinum and palladium, in the same category as silver. They certainly are valuable, but they tend to be less valuable than gold.

Some of that may be due to all the attention gold gets in the daily business press.

The economics

The economics of recovering precious metals from scrap are far from pure. In addition to its business recycling electronics, ECS also recycles jet engines. Parallels exist between the two sectors, Taggart says. Airlines are happy when they get $20,000 for an engine and are dismayed when they are offered $5,000. That, he says, runs parallel to the economics of recovering precious metals from electronics.

Like those airline executives, companies or individuals recycling a computer or a printer tend to think in terms of “my printer” or “those 100 computers” and not in terms of the material in them. Roughly 25 percent to 30 percent of a scrap electronic unit is steel. Perhaps 2 pounds are plastic. An ounce of gold may be present, as are copper and aluminum. Where a customer sees a unit, a recycler must figure the value of each recycled fraction. That composite value, not just today’s iron or silver price, determines the unit’s return.

For that reason, the price of iron or plastic can have as much or more influence on the value of a device as the precious metals, copper or nickel fractions, sources say.

When the oil market tanked, the price on some plastics dropped from 15 cents per pound to 5 cents (though various resins were as high as 50 cents per pound). Or, consider the impact when iron prices dropped from 15 cents per pound to 3 cents. Both incidents hurt recyclers because the cost of processing and moving that material is relatively fixed and the revenue per pound of electronics is far less.

However, the same leverage means that when steel goes to $200 per ton, almost all of that added money flows to the recycler’s bottom line.

A rising market can double the return on an electronic device, according to sources contacted for this story.

Speculators

Just about anyone in the precious metals recycling market has heard the complaint that speculators, who are looking at such varied issues as Brexit, elections, flare-ups in the Middle East or currency crashes in Latin America, appear to drive market prices more so than availability of material for recycling.

Brisson says he thinks people are sitting on material and he expects that to continue until precious metals prices rebound. “People are holding back for sure.”

Brisson says he expects material to remain in storage until the price of gold gets closer to $1,400 per ounce, or at least $1,350. However, he says he does not see prices at that level until sometime toward the middle of 2017.

Taggart says he is not bothered by speculators. As people willing to sell or to buy at any given point, speculators are neither a positive or a negative influence in his view.

Overall, Taggart says he is mildly optimistic about where precious metals markets are headed. “It feels like things are getting better,” he says, adding that he thinks the market has hit a bottom.

“Definitely, this year we have seen markets improve, and it has had an impact. We are better off than we were last January,” Taggart says.

He says he does not see a ton of pressure on the market. “As long as the economy doesn’t tank, we’ll be OK,” Taggart says, adding that he does not foresee a return to 2008-style depression.

“For us, we don’t see anything different than last year,” Rockett says of the market for recycled gold in 2017.

The exception, he and other recyclers say, would be some spectacular event that occurs. Even then, Rockett says he expects such an event would have to be dramatic to cause recycling markets to flinch. “There would be a major movement only if things drop 25 percent,” Rockett says. “Otherwise, things will be the same.”

The author is a contributing editor to Recycling Today who is based in Cleveland. He can be contacted at curt@curtharler.com.