Cooling off

Features - Metals

Precious metals prices continue to soften despite the turbulent environment.

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January 5, 2015

Even with all of the uncertainty in the world—from Ebola outbreaks in Africa to ISIS beheadings in the Middle East—the price of precious metals continues to drop. That must vex the folks who clog investors’ mailboxes with fliers claiming the sky is falling and touting gold as the answer.

Often called the most secure financial refuge in turbulent times, gold markets seem to view the present as one of the more placid times in world history. As with gold, so too with the platinum and palladium recycled from catalytic converters. Is some other factor at work?

“Business is very slow,” says Steve Shalit, vice president, Catalytic Converter Corp., Jamaica, New York. “There is no flow. Low prices equal low volumes.”

On top of that, Shalit says he sees stiff competition for the material that is available. It makes business difficult for everyone. “It is rough. These are tough times … and it is not just for catalytic converters,” Shalit observes. He says he feels the iron market is collapsing, too, compounding problems for platinum group metals (PGMs). As prices for recycled iron and steel slip, auto crushers have less incentive to be aggressive and seek out materials.

“The prices of platinum and palladium have dropped,” says Alan Cohen, Pull-A-Part, Atlanta. In fact, the PGMs have been on a topsy-turvy path of late.

When asked why, Cohen says, “Talk to the Chinese.”

As vehicle dismantlers, Pull-A-Part removes catalytic converters from vehicles to recover their precious metals content. The prices the company receives are totally dependent on the broader commodity market, and Pull-A-Part says it moves converters out as soon as it gets them in.

“We don’t stockpile anything,” Cohen says.

While Cohen and Shalit describe sluggish, soft markets for precious metals, some recyclers have a different perspective on the state of this sector as of late 2014.

“PGMs have not dropped at all for us,” says Bill Rockett, vice president of the M&K Recovery Group, North Andover, Massachusetts. In fact, he says, “There is not too much change across the board.”

Umicore, a Brussels-based firm, says the worldwide catalysis market is driven by the sales of catalysts for heavy-duty diesel applications. The company says its recycling revenue through October 2014 was up as a result of higher processed volumes. Umicore adds that the investments it made in its Hoboken, New Jersey, recycling plant during the summer were completed successfully and the throughput at the plant has increased.
 

Platinum's wild ride

Platinum prices on the LME (London Metal Exchange) at the start of December 2014 were in the $1,210 per ounce range. That’s a drop from the $1,275 range seen in mid-to-late October 2014 but a bit of an improvement from the $1,160 per ounce price seen at the end of September. However, prices were nudging $1,400 per ounce just six months earlier.

What was behind the fluctuations?

Early 2014 saw a huge, devastating five-month strike by the Association of Mineworkers and Construction Union in the platinum mining areas, which wreaked havoc with platinum. The strike was the longest in recent memory. During that time, platinum supply levels dropped substantially, and prices went for a ride. In March, for example, prices were pushing the $1,400 per ounce level.

Shalit says he is especially worried about the platinum market. South Africa is exporting less raw material currently. “With the mills operating at a loss at this level, there is no incentive to produce. At some point, the price has to catch up,” Shalit says.

Until base metal prices improve, strong prices for other recycled metals have little hope, he says.

Things are so difficult that the industry is moving to form a public relations campaign for platinum. Right after the mine strike was resolved, talks of a World Platinum Investment Council began. Likely to be headquartered either in London (close to the LME) or Johannesburg (close to the mines), the World Platinum Investment Council’s main focus will be to promote investment demand for platinum.

Whether the formation of the organization is a good thing for the recycled PGMs markets remains to be seen.

The London Platinum and Palladium Fixing Co. Ltd. (LPPFCL) has appointed the LME to administer the London platinum price. The LME will do likewise for palladium. A twice-daily auction will take place on LMEbullion, the LME’s new custom-built electronic price discovery platform. LMEbullion uses a transparent price discovery mechanism and combines leading elements of the existing process with independent administration, governance and oversight, according to the LME. The LMEbullion delivers a “best of both worlds pricing solution for precious metals,” the LME says.

The London pricing website went live in early December 2014.
 

Palladium and world markets

Several times between late October 2014 and the start of December, palladium tested the $800 per ounce mark. For most of November, it was trading in the $760 range. That is not too far off the $740-to-$750 range where it started in early October. It started December at $803 per ounce. However, it kept pushing back to the $800 level.

“Most of the demand for palladium is for Chinese cars,” Shalit says. As long as China continues to grow its auto market, hope remains for price stability there.

In the meantime, the situation in Ukraine is putting great pressure on the palladium market. While the unrest in Ukraine has faded from the front pages of world newspapers, the situation still remains dicey. In a way, this uncertainty could be good for the price of palladium as further price uncertainty would translate into higher prices.

“Palladium is the more attractive metal,” Shalit says of the PGM metals. He says he sees the metal spending some time around the $800 level. “But it will not go to $900,” he adds.
 

Gold and silver

Gold prices, floating in the $1,150-to-$1,220 per ounce range, are down about 10 percent for the year but are up more than 17 percent for the past five years. Most traders, however, look back 12 to 18 months when gold was in the $1,700 range and long for the “good old days.”

Those driving the speculator market are trumpeting the fact that gold is down 36 percent from its high of $1,924 a couple of years ago—of course, their interest is in grabbing commissions on the purchase and sale of a commodity and not in the underlying fundamentals of the metal. From that point of view, gold at $1,181 in early December was not a big sales tool.

On top of that, the short-term gold prices took a nosedive in September, losing about $70 per ounce into early October. And, for the investor/speculator community, gold bugs had more bad news. Michael Coop, head of multiasset strategies at MorningStar, said in an interview with CNBC-TV18 that gold prices could fall even more over the course of the next five to seven years, adding that he expects prices to be lower during that time than they are right now. No matter what the speculators and promoters say, however, gold is priced correctly for today, he said. Today’s price is the price a recycler must deal with.

In addition to platinum and palladium, M&K’s operations recover gold and silver from parts sent to its 35,000-square-foot location in Massachusetts or to the company’s Austin, Texas, branch. The company offers on-site recycling, including precious metals refining, and computer and electronics recycling. The company says its “chain of custody” tracking assures materials are handled properly and in an environmentally safe manner.

The flow of gold-bearing and silver-bearing materials has been the same. “It really hasn’t changed much,” Rockett says.

Silver, which had hovered around $17.25 or $17.40 per ounce through most of October 2014, was down to $16.60 on the LME in November. By December, silver had slumped into the high $15 range, starting the month at $15.85.

In the meantime, the gold jewelry market in India has markedly improved. According to the Center for Monitoring Indian Economy (CMIE), Mumbai, exports of gold and silver jewelry surged. Gold jewelry exports grew by 39.4 percent to about $1 billion in October 2014. Similarly, CMIE reports that silver jewelry exports rose by a whopping 36.9 percent to $163.3 million.

“After falling continuously for four months, exports of gold medallions and coins grew by 59.5 percent,” CMIE reports.

This flies in the face of other high-value categories from the same region. Pricing for India’s cut-and-polished diamonds, as well as rough diamonds, fell because of lower export volumes.

In China, an across-the-board slowdown has occurred. Some observers say China is making great strides internally with generation and consumption of its own scrap and is buying less recycled commodities on the international market as a result. The Chinese government has political and policy issues and the country’s internal banking situation is dislocated, too.

Rockett remains philosophical about the market. “We try not to worry about it. The market spikes up, sits for a while and drops. You simply have to adjust the price and move on.

“I don’t see it getting any worse,” Rockett adds.

“I think the world economy is improving and, as a result, things will improve,” Cohen says.

Shalit is not so sure. “With the strong U.S. dollar, the markets are not looking good,” he says.

 


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