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Demand Rises for Platinum Group Metals from Recycled Catalytic Converters

Published in Recycling Today: Features – Scrap Metals Supplement – January 2018

Demand for platinum group metals (PGMs) – platinum, palladium, and rhodium – derived from recycled catalytic converters has never been stronger. It was estimated that, in 2018, 30% of platinum group metals in circulation came from converter recycling. On the supply side, however, shortages and deficits are affecting the growing global demand. How can we expect to keep up?

The answer may lie with PGMs recovered from the scrap metal and recycled catalytic converter industry.

Production Shortages Mean Better Prices for Recycled PGMs

Recycled PGMs only account for one-quarter of all available stock annually, but they’re a highly desirable source of PGMs. This is because it’s much cheaper to recover precious metals from scrap catalytic converters than it is to mine them.

Platinum & Palladium Shortages

According to the 2017 PGM Market Report from UK chemicals company Johnson Matthey, during the preceding six years, there was an average global shortage of 346,600 ounces of platinum, while palladium supplies fell 806,300 ounces short of demand. Given these shortages, the catalytic converter recycling industry is a critical source of PGMs. With global PGM demand growing by 2% every year, converter recyclers are in the right spot to keep the supply chain rolling.

Cost Curves

While converter recycling has its own challenges, there’s no debate that it’s more cost-effective than mining PGMs. 

PGM mines are 10 times more expensive to operate than any recycling business. Primary production of PGMs has costly requirements, such as a constant supply of fuel, thousands of employees who require salaries and benefits, and waste disposal, which in addition to being costly, is also environmentally damaging. With all these costs, recycling converters for precious metal extraction becomes the preferred and cost-effective route. 

Let’s look at an example. In 2015, the average global cost to mine 1 ounce of platinum from the ground was $932, according to Statista. The average platinum spot price, however, was $1,053 in 2015 and $988 in 2016. That makes it harder for mining companies to turn a profit..

In contrast, the cost to recover 1 ounce of platinum from recycled converters is 10 times less expensive, according to PMR’s 20 years of auto catalyst refining experience. 

When you think about the challenges mining operations face, it becomes clear that recycling precious metals is cost- and energy-effective. The real challenge that converter recyclers face is having enough volume consistently to make up for the shortages from mining.

How Many Scrap Converters are Available to Recycle?

To estimate how much converter stock will be available in a year, PMR uses the trickle-down effect. This calculates how many converters will be available for recycling based on new vehicle sales. PMR believes that if a new car is sold, somewhere down the line, an end-of-life vehicle (ELV) reaches the scrap yard. 

According to the trickle-down effect and based on our estimates, for every new vehicle sold, 1.5 scrap converters become available. Vehicles typically have more than one converter, giving us the 1.5 figure.

An Example from the United States

In 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 were available to recycle. That means that 348,001 troy ounces of platinum, 986,000 troy ounces of palladium, and 102,130 troy ounces of rhodium had the potential to be recovered. 

Additionally, the United States represents 30% of globally recovered platinum, 50% of palladium, and 30% of rhodium. These numbers should be enough to get anyone in the automotive recycling industry interested.

Favoring Palladium

Johnson Matthey recorded a global palladium shortage of 163,000 troy ounces in 2016 and anticipated a shortfall of 792,000 troy ounces in 2017. The company’s prediction for 2017 turned out to be correct as demand again outstripped supply. Despite the price volatility of the past decade, palladium remains cheaper than platinum. The proof is in the average yield of precious metals per metric ton of catalytic converters collected in North America. For example, the average North American metric ton yields 17 ounces of platinum, 51 ounces of palladium, and 6 ounces of rhodium. That means that for every ounce of platinum in North American converters, you can expect roughly 3 ounces or more of palladium.

In terms of converter value, however, we’ve already passed the 2014 per-can averages. With palladium prices higher than platinum, the average per unit values for converters are now higher than in 2014. 

For years, scrapyard owners have been conditioned to react to platinum prices. Once they come around to palladium’s higher market value, they’ll be encouraged to liquidate their stock and their hoarded stock of scrap metal and converters will re-enter the market. But the question is: is it enough to affect global suppliers? That’s what PMR will be on the lookout for.

And What About Platinum?

Platinum and palladium can be inversely loaded in converters to create the same regulating effect on emissions. Once North American automakers understood this fact, they started loading more palladium in their converters, since palladium is 78% less expensive per ounce than platinum.

As palladium is increasingly used as a cheaper alternative to platinum, all eyes will be on the platinum market to see how its price changes.

Other Ferrous Scrap

We have not seen more metals recovered from ELVs because 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, automobile owners keep their cars for much longer than the standard rate because of the reduction in scrap prices. This means that fewer ELVs are reaching the recycling phase. 

On top of a lack of ELVs in scrapyards, there is a hoarding problem once the ELVs are there. When metal prices are deflated, it’s not profitable for recyclers to sell, So they hold onto their material until the price improves, as it occurred in 2014.

Growing Demand

Global demand for PGMs is steadily rising, while demand for recycled PGMs from scrap catalytic converters remains significant. All of this will fuel catalytic converter buyers’ profits in the coming years. But it’s important to remember that converter buyers operating with reliable information make anywhere from 15% to 30% profit buying and reselling materials to a converter processor/refiner. To enjoy the highest profits possible, make sure that your business partner provides all the necessary buying and processing information.

Without the right buying information, buyers are at risk of losing money. Because different jurisdictions have buying restrictions, many scrapyard owners and recyclers shy away from converter acquisition. But the ones who’ve reached out to a trusted processor/refiner have seen their business grow.

What Technology Can Do For PGMs

Fortunately, there have been many advances in the industry. Technology has an increasingly important role in the converter recycling industry. If your company sells catalytic converter material, you should ask your current buyer what tools are available to help you buy converters. When it comes to converter pricing knowledge, having the right information can mean the difference between profit and loss. 

Demand for PGMs is stronger than it’s ever been, as countries and companies improve their emissions standards. For a decade now, PGM shortfalls have plagued available stock and mining operations are no longer able to meet market needs. It’s now up to the recycling industry to make up for supply shortfalls.  

For more industry news, visit PMR’s Resource Center.

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