Spring Forward

BIG BUSINESS. Years ago, five or 10 buyers would have been past his operation, looking for converters. Today, they send their converters to an aggregator who recycles them in larger volumes.

"Prices are going up with the volume," Morrison also notes. But for an operation his size, a jump on the average price of a converter from $27 to $35—while nice—is not going to make or break his day.

Still, dealers at all levels have seen a growth in interest in converters.

"We’ve seen an increase of close to double our volume over the past few months" says Jeff Couture, Prospera Metals Inc., Petrolia, Ontario. Prospera is now handling nearly 10,000 converters per week.

Credit the increased market to several things beyond the weather. The platinum market is stable at an attractive level. This has encouraged bit players to get involved in converter collection. Dismantlers and auto salvage yards are quite aware of the value of a converter and are looking for outlets. Taken together, the converter market is experiencing a boomlet.

"The market has stabilized over the past six months since there are not the swings in platinum pricing," Couture says. "It makes for a much more stable market for everyone."

He continues, "There is enough buying at source levels to accommodate the market." Auto salvage yards and muffler shops remain the key sources. However, the profile of the buyers is changing.

"There have been increases in the number of entry-level buyers—guys who are picking up 50 to 200 pieces per week," Couture says. "More people are calling looking to do business, looking for a place to move converters."

Part of this is because of the increase in platinum prices. Small-timers see the opportunity to make a few bucks. The buzz from those networking out on the streets is that money can be made in converters.

Indeed, at $30 to $35 per converter, cash can be realized. But the days of grabbing some units on the street for $5 or $10 are gone. "The folks pulling material off the vehicles are more educated, more sophisticated," Couture agrees.

Maximizing catalytic converter returns is an area where the QRP group does not have a program. Morrison says the geographic diversity of QRP members, as well as the logistical problems of coordinating payment, make it a hard sell.

"Product from South Dakota goes to a different [destination] than ours," he says. "It is tough to coordinate 25 different owners."

The change in the precious metals content of the converters coming through the recycling stream is easier to mark.

CATALYTIC TUNE-UP. "Indications are that the U.S. auto industry has been transitioning to a greater proportion of palladium in the manufacture of new catalytic converters," says Ashok Kumar, director of A-1 Specialized Services & Supplies, Inc., Croydon, Pa.

Since 2001 (when the price of palladium soared briefly to more than $1,100 per ounce), catalyst manufacturers have had an increasingly strong incentive to switch to a higher concentration of palladium, as the price of the metal has now fallen to less than one-fourth the price of platinum.

Additionally, with the steady increase in new supplies from underground sources and from the growth in recycling, the fears of further supply disruptions have largely abated, Kumar says.

"Above-ground stocks—estimated to be as much as 1 million ounces of palladium—available to the market may further alleviate supply concerns and encourage palladium’s long-term use. Moreover, it is generally believed that Russian stocks of palladium may total another 4 to 6 million ounces," Kumar says.

THE EURO-FACTOR. Catalyst manufacturers have attempted to capture a portion of the growing market for diesel engine cars, particularly in Europe, for the use of palladium. Nearly half of European auto production is now concentrated on diesel engines, which currently contain platinum only, Kumar says.

"The use of palladium in at least a portion of the diesel market is deemed inevitable, and any announcement to that fact will probably have an immediate positive effect on the price of palladium and an opposite adverse effect on the platinum price," he notes.

New technology introduced by Engelhard Corp., Iselin, N.J., allows the use of palladium in the diesel catalyst. The market price for palladium briefly crossed above $202 per ounce in response, but the reaction was short-lived as follow-through buying did not develop. Into early May, the palladium price moved lower, closing at close to $190 per ounce May 3. A similar announcement by Belgium’s Umicore about one year ago had a comparable short-term effect on price.

According to Engelhard’s press release, on a three-catalyst platinum system, only one-third of one catalyst would be replaced by palladium. If we estimate total platinum use for automotive purposes in Europe as being 1.5 million ounces, then half of that would be used for diesel engines, or some 750,000 ounces. If only one-ninth of this amount is to be replaced by palladium (one-third of one of three), then only 83,000 ounces of palladium would be required yearly.

The use of palladium in the diesel catalyst is a positive development for the metal, but this new demand will only relieve a small portion of the supply surplus that overhangs the market.

From the early 1990s, European auto manufacturers have been required to fit catalytic converters on new cars. Greater amounts of palladium also were used in converters made from the mid-1990s through 2001, when the metal’s price soared to uneconomical levels.

"With an estimated average of 10 to 12 years of life, these autos will now be approaching retirement. As a result, a higher ratio of palladium will likely be reclaimed from the recycling of [automotive converters] over the next decade," Kumar says. "This flow of recycled metal will add to the existing supply surplus currently affecting the palladium market, potentially putting further pressure on an already soft market price."

The automotive industry has been successful over time in gradually reducing the amount of platinum group metals (PGMs) loaded onto each converter, by improving converter and engine technology, while still meeting compliance levels for effective pollution control. However, converter manufacturers have been increasing the amount of rhodium in converters in order to satisfy progressively more restrictive environmental regulations encompassed in Tier 2 and Euro 4 mandates. Rhodium is key to the catalysis of nitrous oxides to nitrogen.

"The combination of a greater number of available scrapped autos, more encompassing environmental regulations and improved recycling efficiencies should enable continued growth in the secondary supply of PGMs in the coming years," Kumar continues. "A-1 estimates that by the year 2010, amounts of available recycled platinum could rise to some 1.1 million ounces, while reclaimed rhodium could reach 220,000 ounces annually. Palladium should experience the fastest growth, rising to nearly 2 million ounces per annum by 2010."

By 2015, however, converter-equipped cars produced at the start of the millennium, including platinum-only diesel engines, will begin to be sourced for their metal content, again surrendering greater amounts of platinum. The sharp increase in car sales and production currently underway in developing nations, specifically in China and India, will also bolster the supply of recycled metals in 10 years.

In the U.S. market, things are a bit more difficult, with first quarter production by the Big Three down by 11 percent.

"With over 17 million cars sold each year in the U.S., even a 5 [percent] to 6 percent decline in annual sales would equate to 1 million fewer vehicles," Kumar notes.

"When coupled with a steady increase in platinum and palladium supplies each year from primary and secondary producers, a decrease in automotive demand could put pressure on precious metals prices," he continues. "Moreover, a slowdown in the world economy would adversely affect commodities prices in general, lowering the price for related scrap.

"The net effect could be less revenue for the scrap collector and the local scrap yards. Softer platinum and steel prices could discourage converter collection and even encourage hoarding for a possible price improvement later on," he adds.

Somewhat more optimistic is the outlook for new opportunities in silver.

SILVER LINING. The continuing decline in the use of silver in film is not news. Silver languishes in the $7-per-ounce range. However, the market for industrial uses of silver continues fairly strong, and recyclers may have opportunities to grab the metal from the health care waste stream.