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Maintaining value

Features - Commodity Focus

Auto catalysts have maintained their value despite declining PGM prices.

Curt Harler January 2, 2014

Despite a drop in platinum group metals (PGMs) pricing, the auto catalyst market remains fairly vibrant. However, this is probably not the time to hoard catalysts hoping for a future price rebound.

“The sharp price decline in the metals in February of [2013] and again in June probably dissuaded some collectors from offering scrap for reclaim,” says Patrick Magilligan at A-1 Specialized Services & Supplies Inc., Croydon, Pa.
 

Changing ratios

At the end of June 2013, platinum prices had fallen by as much as $450 per ounce, or 25 percent, from February highs. A recovery in the price of platinum since then likely has brought scrap dealers back into the market, as recycling totals have again begun to improve.

“We definitely see a trend of higher and higher palladium content and lower platinum in later-model vehicles or vehicles that are being scrapped over the last few years,” says John F. Keating, director of business development for Duesmann & Hensel Recycling North America Inc., West Berlin, N.J. He adds that catalyst manufacturers tend to keep their catalyst formulations a secret. “All you can do is look at trends,” he says.

During this past year, palladium prices generally outperformed platinum prices and remained comparatively firm, limiting the fall in scrap sales, particularly given the higher relative loadings of the metal, according to figures generated by Rajesh Seth of A-1 Specialized Services.

The flow of salvage converters to the market always has been predicated on the direction and magnitude of price movements of the PGMs and perhaps even to a greater extent on near- to medium-term price expectations.

“The platinum-to-palladium-price ratio has changed dramatically over the past several years, from a 5-to-1 multiple to a current multiple of nearly 2-to-1,” Magilligan says. (See chart on page 45.) “Owing to the outsized gains recorded in palladium, however, converter values haven’t declined as much as they could have despite the drop in platinum prices and a rhodium price that has languished at 10 percent of its 2008 high,” he says.

“Material flow is pretty consistent,” Keating says, adding that downward trends in PGM pricing slow things up a bit as suppliers tend to hold material, waiting for the market to rebound.

“As much as we try and push these suppliers to get the material in, get it processed and sell the recovered PGMs when they feel comfortable, they still tend to hold,” Keating says. “It’s not an easy sell.”
 

Economic aid

The recent upturn in the broad global economy and a resurgent car market in North America has done its part to make the auto cat and PGM sectors happier places to do business.

Last year, nearly 18.5 million cars were sold, but only 15 million cars were recycled. “It would indicate that there are more families with extra automobiles, but it could also indicate that there is still a great deal of extra vehicles not hitting the scrap yard,” Keating says.

Magilligan says the increase in new car sales seen globally generally will lead to a rise in the number of end-of-life vehicles, particularly in developed Western economies. The National Automobile Dealers Association, McLean, Va., estimates that the proportion of vehicles being scrapped in recent years in the United States is approximately 80 percent that of new car sales. For the first nine months of 2013, U.S. sales expanded by 8.1 percent to 11.8 million vehicles, on pace to meet earlier forecasts of 15.8 to 16 million units for the year, according to Automotive News. That points to higher reclaim rates, at least in the United States.

“However, continued weakness in new European Union (EU) registrations, down 3.9 percent in this same period, likely offsets the recycling gains in other markets,” Magilligan says. He adds that growing sales of new vehicles from countries such as Brazil, Russia and India also likely will equate to increasing amounts of salvage converters in coming years but perhaps not to the same proportion as noted in developed economies. Initially, demand for functioning used cars will be quite high in the emerging economies given the consequent growth in personal wealth.

China, which may produce more than 20 million vehicles in 2013, also should be expected to contribute an increasing number of scrap converters, Magilligan says, cautioning that, again, continued strong demand in the domestic secondary market will limit the totals recycled. According to estimates, some 900,000 cars are currently being disassembled each year across China, accounting for just 5 percent of annual sales compared with 70 to 80 percent in the United States and the EU countries. But with the adoption of Euro V standards across all of China in 2014, almost all new cars produced must be equipped with catalytic converters.

“Assuming similar reclaim rates as in the United States for green scrap, or that material damaged in the canning process or considered as oversupply by the manufacturer, and for warranty repairs, an additional 3 to 4 percent of new converters may be returned for recycling,” A-1’s Magilligan says. That would nearly double the number of salvage converters currently available, he says.

Processors like Duesmann & Hensel find it a fairly straight-forward process to obtain PGMs from recycled converters, Keating says. “We like to think it is easy for us to extract the maximum amount of PGMs from catalytic converters simply from a highly engineered process and excellent sampling system,” he adds. “It’s all about satisfying your customers, making them happy and keeping them motivated to supply more.”

Getting people to supply more auto cats is a two-pronged challenge for all of the recyclers in the market: the price of materials and getting suppliers to load their auto cats onto their trucks and drive them to a processor.
 

Supply & demand

Supply of PGMs remains strong, and demand remains weak, regardless of the surge in automobile production, Keating says, noting that platinum sponge is still at a discount in the market.

Platinum seems to be heavy on the supply side and moderate on the industrial demand side. Continued unrest in the South African mining industry, however, keeps the metal relatively strong, Keating says.

Palladium is showing higher demand fueled by the strong automobile market and a shrinking supply. “You should see its ratio to platinum start to increase,” Keating says of palladium.

“Rhodium seems dead in the water right now,” he adds.

Rhodium content has decreased moderately in automotive catalysts, but there does not seem to be any real industrial demand that can boost it back up.

That said, Keating cautions recyclers to beware: “Rhodium is one of those ‘sleeper’ metals, which I have seen as low as the $400 level and as high as $10,000.”

A-1 is projecting flat to marginal growth in platinum and rhodium recycled from automotive converters in 2013, Magilligan says. That is a function of the continued recession in the European auto sector and the lower loadings of platinum found in auto cats made a decade ago.

Approximately 1 million ounces of platinum and 240,000 ounces of rhodium may be recycled from salvage auto cats in 2013, according to A-1. For palladium, the amount of metal recovered from spent auto cats could rise by 5 percent in 2013 to 1.6 million ounces, reflecting the greater volume of metal that was used in the manufacture of catalytic converters prior to 2001 and the higher loadings of palladium in current recycled green scrap and warranty returns.

Palladium demand for catalytic converter manufacturing has been supportive of the metal particularly in light of the continued robust vehicle sales in China and the United States, Magilligan says.

A recent sample of reclaimed converters from the two largest world vehicle markets indicates that loadings of palladium, as a percentage of total PGMs required, have risen consistently throughout the past several years. For current model year vehicles manufactured in China and the U.S., Seth estimates the average palladium loadings in auto cats at five or six times the amount of platinum required, in excess of 2,000 parts per million (ppm) for palladium versus 300 to 400 ppm for platinum.

“Consequently,” Seth says, “the platinum-to-palladium-price ratio has changed dramatically in just the past two years, from a five-to-one multiple to a current multiple of nearly two to one.”

The relationship between gold and PGMs


Some jobbers find it easier to track the price of gold than that of PGMs (platinum group metals). However, there is some argument over whether the prices of gold and platinum or palladium are linked in any way.

The price differential between platinum and gold reached a deficit of $220 per ounce at the start of 2012, remaining in deficit for most of 2012 before returning to its longer-term relationship of a premium to gold in early 2013. Recently, platinum’s premium to gold has been trading in a range of $80 to $120.

John F. Keating, director of business development for Duesmann & Hensel Recycling North America Inc., West Berlin, N.J., says all metals react to current market conditions.

“I don’t see any real clear correlation between gold and the PGMs, except that they are both precious metals and sometimes good investments in a troubled economic world,” Keating says.

One reason for their independent movement is that their applications are distinctly different.

“Platinum and gold don’t necessarily trade in tandem dollar for dollar as the fundamentals for each may differ considerably,” Patrick Magilligan at A-1 Specialized Services & Supplies Inc., Croydon, Pa., agrees. But, he says, both metals respond similarly to changes in various global economic forecasts. Platinum has declined 21 percent from its 2013 high (set in February) while gold has slipped 25 percent from its January high, he notes.

“Platinum and gold have each fallen sharply from postrecession cyclical highs reached in August 2011, down by 27 percent and 34 percent respectively,” he says.

“Moreover, traders may gauge movements in one metal as one of a number of indicators to predict price movement in the other.”

The disruptions to primary platinum production that occurred across the sector last year cost the industry an estimated 600,000 ounces or more in supplies, according to A-1. Moreover, the potential for reductions in platinum outturn from the South African producers in addition to the projected 400,000 ounces or more annually that have already been lost in light of the closures of many uneconomical operations should act to limit further price declines but may not be sufficient to raise values back to earlier 2013 highs given the offset of lackluster growth in commercial demand, the company says.

Platinum’s largest single sector of demand—the European vehicle market—has been in decline throughout the past several years, a consequence of the recession across most of the EU countries that began in 2009. However, Magilligan says he sees indications that the EU auto market may finally reach bottom with the potential for some improvement into 2014.

According to A-1, investment interest in platinum has rebounded following a bout of liquidation in the second quarter of 2013 with the most recent report of speculative positions on the NYMEX/CME of total noncommercial and nonreportable holdings of slightly more than 2 million ounces. ETF (exchange traded funds) holdings in platinum rose sharply since slipping in the second quarter of the year to 2.3 million ounces as of mid-October.

The launch of the NewGold Platinum ETF from Absa Capital in South Africa in 2013 attracted sizable interest, accumulating 730,000 ounces of platinum by mid-October. The fund, which is now the single largest platinum ETF available, was offered in the South Africa market in local currency terms.

Speculative investors have generally maintained positions in the metal with total ETF holdings still exceeding 2 million ounces and the NYMEX/CME figures as of mid-October citing a net position of noncommercial and nonreportable holdings of 2.4 million ounces, according to A-1.

Rhodium prices declined toward the end of the summer, reaching less than $1,000 per ounce on what appears to be a lack of fresh commercial buyers and continued noninterest on the part of speculative investors, A-1 reports in its “Platinum Market Review” dated September 2013. The auto sector had “thrifted out” as much rhodium needed for converter manufacture over the past five years following the metal’s spike to more than $10,000 an ounce, the company adds.

“A steady growth in global auto sales, particularly in the larger markets of China and the United States, should be sufficient to maintain current consumption levels for rhodium in the automotive sector. Moreover, the implementation of Euro VI standards for cars and light trucks as well as those for heavier trucks in 2013/14 is expected to have a positive impact on consumption totals for rhodium. Euro VI regulations [for cars and light trucks], to commence on Sept. 1, 2014, stipulate a 50 percent reduction in emissions of nitrogen oxides to 80 mg/km (milligrams per kilogram), while Euro VI standards, begun in January 2013, call for an 80 percent decrease in nitrogen oxides and a 66 percent drop in particulate matter emissions in heavy-duty vehicles,” A-1 notes in its September 2013 “Platinum Market Review.”

Considering the loss of primary supplies of rhodium from South African producers of perhaps 5 percent or more in 2013, the requirements mandated by the implementation of new European emission standards and indications of a possible bottoming in EU car sales volumes, demand may appreciate modestly in the near term. Prices may improve by the first half of 2014 with a possible return to $1,200 per ounce, levels last seen as recent as February and March of 2013, according to A-1.
 

Looking ahead

The deficit in the platinum market is forecast to increase from 340,000 ounces in 2012 to 605,000 ounces in 2013, according to Johnson Matthey (JM), London. The company says it expects industrial use and investors to lift gross platinum demand by 4.9 percent to 8.42 million ounces. Platinum recycling will grow slightly to 2.08 million ounces, JM projects.

JM says it expects auto catalyst demand to drop 2 percent to 3.13 million ounces. This reflects weakness in the world’s two largest markets for diesel cars, Europe and India. JM says it expects additional thrifting by auto makers still using platinum in gasoline catalysts. However, platinum usage in heavy-duty applications will rise, with a greater number of diesel trucks meeting strict Euro VI limits.

Recycling of platinum from auto cats will jump by 12.8 percent to 1.28 million ounces, according to JM. Recoveries will benefit from increasing availability of highly loaded diesel catalyst scrap, improved collection efficiencies and destocking by collectors.

Reprocessing of old platinum jewelry will drop by 12.9 percent to 775,000 ounces, reflecting lower recycling rates in China and Japan, JM forecasts.

Platinum prices may be expected to move back initially to test the $1,500 level and then to recent highs above $1,550 per ounce and to perhaps continue up to $1,600 to $1,625 per ounce in early 2014, Magilligan says. “It would also appear given the present fundamentals that the highs and lows for 2013 have already been set.”

The average age of cars presently on the road in the United States and in the EU is estimated to exceed 12 years. “As we approach the latter half of this decade, a larger number of platinum-rich gasoline and diesel converters should begin to flow onto the market, and the amount of recycled platinum and rhodium should experience improved growth,” Magilligan says.

But, at the start of the next decade, increasing amounts of palladium sourced from recycled auto cats again should be evident given the higher loadings of the metal vis-à-vis platinum that began in 2010, Seth says.

The recent decline in total primary supplies of palladium resulting from production losses from South Africa in light of labor disruptions and to a number of mine closures for economic reasons has been compensated in part by increases in recycling.

Although the gap between palladium supply and demand should have narrowed by the end of 2013, JM says it sees a market deficit of 740,000 ounces. Primary supplies will decline to 6.43 million ounces in light of lower Russian stock sales.

Recycling is a bright spot, projected to grow by 7.4 percent to 2.46 million ounces. Palladium demand will fall by 3.4 percent to 9.63 million ounces, with auto catalyst demand strongly up but reduced purchases from most other sectors, JM speculates.

The Chinese car market will lift palladium usage in auto cats by 4 percent to 6.97 million ounces worldwide. China will become the second largest market for palladium in auto cats at 1.51 million ounces.

“It has been estimated that perhaps as much as 250,000 ounces or more of annual palladium production from prestrike levels from South Africa has now been lost; outturn from Norilsk, the single largest source of supply, will likely be reduced by another 100,000 ounces of palladium in 2013,” Magilligan says.
 


In contrast, the amount of palladium derived from auto cat recycling will be as much as 100,000 ounces greater at the close of 2013.

Nevertheless, Magilligan says he fears the combination of sizable losses in primary production and the assumed completion of earlier Russian stock sales should leave the palladium market in deficit for 2013, and, as it appears now, likely again in 2014.

“Palladium prices as a result are expected to recover back to the $750 area and perhaps then to its early-August high of $770 an ounce in the fourth quarter or into early 2014,” Magilligan says.

Is it worth gambling on? The sources contacted for this article say, “No.”

“All I can tell people is don’t sit on material waiting for a better day,” Keating says. “Get the material in and get it processed.

“Material already refined is the most fungible form and easiest to trade. Why pay finance fees if you don’t have to?” Keating asks.


 

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

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