In June of 2020, I had the privilege of moderating a webinar regarding the auto catalyst value chain with the International Precious Metals Institute, Pensacola, Florida. (The webinar can be viewed at bit.ly/IPMIwebinar.) Some of the analysts, refiners and processors that I respect were on the panel.
Jonathan Butler, the head of business development at Mitsubishi Corp., who is based in London, kicked off the webinar with a presentation on the entire auto catalyst value chain. That was followed by a Q&A session with the panel.
I want to share some of the takeaways that I think most recyclers will want to hear as they pertain to metal prices, metal supply and demand, the availability of end-of-life vehicles and the value of their scrap catalytic converters.
The pandemic’s effect
Butler said the COVID-19 pandemic represented “the steepest and the deepest economic contraction in living memory, perhaps ever, with unprecedented simultaneous collapse in both the supply side and demand side of the economy.”
While China’s economic recovery appears to be V shaped, the shape of the recoveries in the U.S. and Europe were still being debated at the end of 2020, with many economists saying K- and L-shaped recoveries are more likely.
The macroeconomic and technical factors that affect the price of precious metals are positive for the foreseeable future. Economically speaking, low interest rates, the expectation of future inflation, government stimulus spending and the weakening of the U.S. dollar against other world currencies bode well for nonyielding assets such as those in the platinum group metals (PGMs) complex.
Supply, demand and prices
About 80 percent of the world supply of PGMs comes from mining in South Africa, Russia, Canada and the U.S. In March of 2020, major South African mining companies declared force majeure. Also, Anglo American Platinum, Johannesburg, announced Nov. 5, 2020, that it would be closing its Phase B converter plant due to water leaks. These disruptions affected the supply of platinum and rhodium.
Wilma Swarts, head of PGMs at London-based Metals Focus, a precious metals research consultancy, stated in the webinar that the likely permanent restriction of supply would most definitely have a tightening effect on the market. With South Africa producing the lion’s share of platinum and rhodium, the fall in supply has helped to support prices.
For most of November 2020, platinum prices remained above the $950 per ounce level partly as a result of supply tightness emanating from processing issues in South Africa as well as resurgent investment interest.
Demand for PGMs mostly will be favorable in 2021. Sixty-five percent of the world’s demand for these metals comes from the automotive sector. The Cox Automotive full-year forecast remains at 14.3 million units, down 16 percent from 2019. New retail, down 9 percent, will perform better than fleet, which is forecast to come in near 1.9 million, down 42 percent.
Butler said ongoing national lockdowns in Germany, France, the U.K., Belgium and several other countries make it difficult to be optimistic for the near-term prospects of the European car market. In the first 10 months of 2020, auto sales were down 29 percent on a year-over-year comparison. (China was down 9 percent, and the U.S. was down by 17 percent in the same period.) The second lockdowns are likely to result in a W-shaped pattern of recovery.
However, Butler also said demand for palladium in emissions control has risen in line with the strong recovery in the Chinese car market since May. As of November 2020, China registered six successive months of growth in car sales.
The advent of China 6 emissions legislation starting in January implies a rise in the average loading of palladium (and rhodium) in emissions control systems, which has been apparent in buying patterns of original equipment manufacturers (OEMs) for several months.
Butler said he believes palladium demand will continue to be underpinned by China’s automotive sector.
As of the end of 2020, palladium continued to find support at the 50-day moving average price level of $2,400 per ounce after putting in a strong month of gains in November, supported by strong demand in the auto sector and ongoing supply concerns.
“On the light-duty side, China and India are also moving to Euro 6-equivalent legislation (the sixth incarnation of the European Union directive to reduce pollutants from vehicle exhausts), which generally means tighter control of oxides of nitrogen, or NOX, and the other regulated pollutants—especially unburnt hydrocarbons, which means more palladium used in oxidation,” Butler said in the webinar. “Since rhodium is a superior catalyst for the chemical reduction of NOX, this move is likely to mean significantly higher rhodium loadings per vehicle.”
Rhodium hit record price highs of more than $16,000 per ounce in November 2020 on a combination of curtailed South African supplies, automotive demand and a degree of speculative activity.
Mark Caffarey, president of Umicore USA, Raleigh, North Carolina, said in the webinar that COVID-19 and lower oil prices have little impact on the electrification of vehicles. He said government incentives are likely to push OEMs more toward hybrids and electric vehicles (EVs).
Bloomberg recently reported that hybrid vehicle sales are outpacing EV sales. This is positive for PGMs because catalytic converters on hybrid cars use more PGMs than traditional internal combustion engine (ICE) vehicles and EVs, which have no catalytic converters. However, EVs are positive for platinum, which is used heavily in fuel cells.
With platinum being 44 percent of the cost of palladium, OEMs are interested in substituting most of the palladium used in auto catalysts with platinum, as was the case in the 1990s.
Craig Ostroff, global sales manager for BASF Corp., based in Iselin, New Jersey, stated during the webinar that in March 2020, South Africa’s Sibanye-Stillwater along with Impala Platinum (Implats) had partnered with his company to develop a new trimetal auto catalyst, allowing the partial substitution of palladium with platinum. He noted that this move could require re-engineering of exhaust systems to move the platinum-rich cats away from the manifold to prevent sintering.
In recent years, palladium and rhodium have been in a deficit, while platinum has been in a surplus. Lower demand and lower supply of palladium, coupled with the increased long-term use of platinum for newer technologies and substitution, and increased demand for rhodium to control NOX emissions do have the ability to bring the metals into closer equilibrium than before COVID-19.
The volume of scrapped vehicles has fallen with fewer people buying new cars to replace the old. Butler said he expects auto catalyst recycling to fall by 20 percent because of the general auto market slowdown, disruptions to collection networks, logistics and some refineries related to workforce shortages, as well as transport and financing issues.
Oliver Krestin, managing director of Hensel Recycling, Aschaffenburg, Germany, stated during the webinar that closed auto dealerships and steel mills, lockdowns across borders in Europe and fewer car accidents have hit the automotive recycling community hard in the short term. He added that government incentives likely will push ICE vehicles into the recycling stream but would not necessarily be good for PGM demand as they would encourage purchases of EVs and hybrids.
Umicore’s Caffarey also noted that in the financial crisis of 2008, governments pushed car scrappage schemes, such as Cash for Clunkers, which he said was highly likely to happen again to stimulate recycling rates.
One way: assay
When it comes to recycling scrap catalytic converters, we at United Catalyst Corp. believe that assay-based selling with a process, a program and a partner you can trust is the only way to maximize the money you get for your cats.
In life, there is more than one way to do most things. This is not true with converter recycling. A specific amount of precious metals is in each converter. It costs to recycle them. Each metal that is sold has a price. You’re either in the real game, or you are not. Remember, keep selling into the market on assay. Play the long game.