Addressing the State of the Industry

Addressing the State of the Industry

The factors affecting the precious metal refining industry are varied. Here’s an examination of those influences and how the industry has responded to them.

Whereas gold, silver, and copper were the mainstays of the older refining operations, modem facilities also are able to refine palladium, platinum, and rhodium--and iridium and ruthenium in some operations--to high purity. Modem refineries often have the latest in furnaces, incinerators, and various types of refining and ancillary equipment. Baghouses and scrubbers protect the environment from pollution. Sabin Metal Corp., for example, operates a pyrometallurgical and hydrometallurgical closed-loop facility, using a proprietary system that ensures that all residuals from the operations remain within the plant.

Computers are used in every phase of operations. And a fully equipped and professionally staffed analytical laboratory is of the utmost importance to the refining process.

Coping With Material Changes

The type, quality, and quantity of material entering plants for processing and refining have changed, in large part, because of shifts in other businesses. Some examples:

Rising prices of some precious metals have led to their reduced use in industry. One example is the substitution of palladium and silver for gold and platinum, where possible, in electronics and other industries.

Advanced techniques and space requirements have been instrumental in the miniaturization of components manufactured for the electronics and ancillary industries. As a result, we rarely see the large circuit boards and components common in the 1960s and early 1970s.

The use of offshore manufacturing or assembly plants, many the subsidiaries of U.S. companies, results in much precious metal scrap remaining overseas. Therefore, refineries in those and nearby countries benefit from these operations.

Overseas buyers are vigorously competing in the U.S. market for precious metal scrap, often purchasing materials with cash. They have a distinct advantage since they are able to ship and refine this scrap offshore at costs lower than in the United States. However, the cost of antipollution equipment, newly required by some foreign governments, will have a direct effect on the prices that overseas buyers can pay for scrap.

Reading the Market

It is important for refining businesses to protect the price paid for the metals--and hence the bottom line. Because precious metals are used not only in industrial applications, but also as financial tools, they are fickle commodities. Therefore, hedging on the commodity markets and tracking precious metal use and reclamation are necessities. The volatility of the market demands following the hour-by-hour shifts in the prices of precious metals worldwide. Sabin Metal keeps up-to-date through an affiliated company, Sabin Commodities Inc., which is a member of the Commodity Exchange and the New York Mercantile Exchange.

To understand just how erratic the precious metal markets can be, review the following statistics for each of the major precious metals. Note, however, that uncertainties about the U.S. economy and tensions in the Middle East have caused current prices to fluctuate even more than usual.

Gold, the heraldic metal, was priced in London in 1977 at a high of $168 per troy ounce, according to the American Metal Market. In 1980, the high was $850; in 1985, it was down to $341. Although gold had been trending at around $382 per troy ounce, recent conflict in the Mideast has contributed to price fluctuations of as much as $15 daily. In 1988, the U.S. government used approximately 1.7 million troy ounces of gold for coinage, while worldwide use of gold in electronics, jewelry, and dental applications during the same year was an estimated 45.1 million troy ounces. More than 4.3 million troy ounces of gold were reclaimed from scrap last year--1.9 million troy ounces of which were reclaimed in the United States.

Silver, usually found as a byproduct of other ores, was first used for coinage, decorative products, and jewelry. Based on prices listed by the Silver Institute, the cost of a troy ounce of silver moved from a high of $4.99 in 1977 to $50.35 in 1980 to $6.89 in 1985. The price of silver in early October was $4.75 per troy ounce. In 1988, photographic uses accounted for more than 50 percent of the silver consumed, while electrical products and electronics accounted for another 25 percent. The balance was used in jewelry, flatware, and other industries. Approximately 62 minion troy ounces of silver were reclaimed from scrap in the United States in 1989.

Platinum, one of the noble metals, was first used by the pre-Columbian Indians of Ecuador. According to the American Metal Market, prices have ranged from an average of $436.77 per troy ounce in 1980 to $291.33 in 1985, and $531.18 in 1988. At this writing the price was around $445. Platinum is critical to the industrial sector because its special physical and chemical properties allow it to transform certain substances into safer, more useful materials. It is widely used in catalysts manufactured for the chemical and pharmaceutical industries, in automobile catalytic converters, as well as in coinage, jewelry, and the glass industry. Internationally, the Japanese are the largest users of platinum for jewelry, and two coins, the Australian Koala and the Canadian Maple Leaf, are 99.95-percent pure platinum. Most of the primary deposits are found in South Africa; however, platinum is found as a byproduct of nickel and copper mining in Canada and the Soviet Union. The total world mine output in 1988 of the platinum group metals-platinum, palladium, rhodium, ruthenium, iridium, and osmium-was estimated by the U.S. Bureau of Mines to be approximately 8.9 million troy ounces.

Japan's electronic components industry is the major consumer of palladium, another of the noble metals, which is also used in the electrical, dental, and jewelry industries. In addition, this metal is heavily used in the manufacture of catalysts for the chemical and pharmaceutical industries, in multilayer ceramic capacitors, and in thick-film hybrid integrated circuits. Significant amounts of palladium are still being recycled from old telephone switching equipment. The spot price as of this writing was $100 per troy ounce, a low quote considering palladium's price history.

Rhodium, which reached $7,000 per troy ounce in recent months, is the most expensive of the platinum group of metals. It plays an important role in automobile catalytic converters since it is particularly good at reducing nitrogen oxide emissions in cars and trucks. Because the Environmental Protection Agency will soon be adopting a higher standard of emissions control, the demand for rhodium is almost certain to increase. Rhodium is also alloyed with platinum or palladium for use in furnace windings, thermocouple elements, and many other industrial applications. The price of rhodium as of this writing was approximately $5,200 per troy ounce.

Charting the Future

Where lies the future of the precious metal refining industry?

Secondary refining likely will continue out of necessity, since the production of precious metals from virgin sources has lessened because of a variety of factors. These include global turmoil; increasing interest rates, production costs, and capital expenditures; pressure to maintain the environment; labor strikes; and the all-important supply-and-demand fundamentals.

Therefore, the secondary refiner, able to recover precious metals from scrap, should remain a major player in the precious metals market and should continue to receive a mixture of products from which to reclaim the metals.

Addressing the State of the Industry

The factors affecting the precious metal refining industry are varied. Here’s an examination of those influences and how the industry has responded to them.

Whereas gold, silver, and copper were the mainstays of the older refining operations, modem facilities also are able to refine palladium, platinum, and rhodium--and iridium and ruthenium in some operations--to high purity. Modem refineries often have the latest in furnaces, incinerators, and various types of refining and ancillary equipment. Baghouses and scrubbers protect the environment from pollution. Sabin Metal Corp., for example, operates a pyrometallurgical and hydrometallurgical closed-loop facility, using a proprietary system that ensures that all residuals from the operations remain within the plant.

Computers are used in every phase of operations. And a fully equipped and professionally staffed analytical laboratory is of the utmost importance to the refining process.

Coping With Material Changes

The type, quality, and quantity of material entering plants for processing and refining have changed, in large part, because of shifts in other businesses. Some examples:

Rising prices of some precious metals have led to their reduced use in industry. One example is the substitution of palladium and silver for gold and platinum, where possible, in electronics and other industries.

Advanced techniques and space requirements have been instrumental in the miniaturization of components manufactured for the electronics and ancillary industries. As a result, we rarely see the large circuit boards and components common in the 1960s and early 1970s.

The use of offshore manufacturing or assembly plants, many the subsidiaries of U.S. companies, results in much precious metal scrap remaining overseas. Therefore, refineries in those and nearby countries benefit from these operations.

Overseas buyers are vigorously competing in the U.S. market for precious metal scrap, often purchasing materials with cash. They have a distinct advantage since they are able to ship and refine this scrap offshore at costs lower than in the United States. However, the cost of antipollution equipment, newly required by some foreign governments, will have a direct effect on the prices that overseas buyers can pay for scrap.

Reading the Market

It is important for refining businesses to protect the price paid for the metals--and hence the bottom line. Because precious metals are used not only in industrial applications, but also as financial tools, they are fickle commodities. Therefore, hedging on the commodity markets and tracking precious metal use and reclamation are necessities. The volatility of the market demands following the hour-by-hour shifts in the prices of precious metals worldwide. Sabin Metal keeps up-to-date through an affiliated company, Sabin Commodities Inc., which is a member of the Commodity Exchange and the New York Mercantile Exchange.

To understand just how erratic the precious metal markets can be, review the following statistics for each of the major precious metals. Note, however, that uncertainties about the U.S. economy and tensions in the Middle East have caused current prices to fluctuate even more than usual.

Gold, the heraldic metal, was priced in London in 1977 at a high of $168 per troy ounce, according to the American Metal Market. In 1980, the high was $850; in 1985, it was down to $341. Although gold had been trending at around $382 per troy ounce, recent conflict in the Mideast has contributed to price fluctuations of as much as $15 daily. In 1988, the U.S. government used approximately 1.7 million troy ounces of gold for coinage, while worldwide use of gold in electronics, jewelry, and dental applications during the same year was an estimated 45.1 million troy ounces. More than 4.3 million troy ounces of gold were reclaimed from scrap last year--1.9 million troy ounces of which were reclaimed in the United States.

Silver, usually found as a byproduct of other ores, was first used for coinage, decorative products, and jewelry. Based on prices listed by the Silver Institute, the cost of a troy ounce of silver moved from a high of $4.99 in 1977 to $50.35 in 1980 to $6.89 in 1985. The price of silver in early October was $4.75 per troy ounce. In 1988, photographic uses accounted for more than 50 percent of the silver consumed, while electrical products and electronics accounted for another 25 percent. The balance was used in jewelry, flatware, and other industries. Approximately 62 minion troy ounces of silver were reclaimed from scrap in the United States in 1989.

Platinum, one of the noble metals, was first used by the pre-Columbian Indians of Ecuador. According to the American Metal Market, prices have ranged from an average of $436.77 per troy ounce in 1980 to $291.33 in 1985, and $531.18 in 1988. At this writing the price was around $445. Platinum is critical to the industrial sector because its special physical and chemical properties allow it to transform certain substances into safer, more useful materials. It is widely used in catalysts manufactured for the chemical and pharmaceutical industries, in automobile catalytic converters, as well as in coinage, jewelry, and the glass industry. Internationally, the Japanese are the largest users of platinum for jewelry, and two coins, the Australian Koala and the Canadian Maple Leaf, are 99.95-percent pure platinum. Most of the primary deposits are found in South Africa; however, platinum is found as a byproduct of nickel and copper mining in Canada and the Soviet Union. The total world mine output in 1988 of the platinum group metals-platinum, palladium, rhodium, ruthenium, iridium, and osmium-was estimated by the U.S. Bureau of Mines to be approximately 8.9 million troy ounces.

Japan's electronic components industry is the major consumer of palladium, another of the noble metals, which is also used in the electrical, dental, and jewelry industries. In addition, this metal is heavily used in the manufacture of catalysts for the chemical and pharmaceutical industries, in multilayer ceramic capacitors, and in thick-film hybrid integrated circuits. Significant amounts of palladium are still being recycled from old telephone switching equipment. The spot price as of this writing was $100 per troy ounce, a low quote considering palladium's price history.

Rhodium, which reached $7,000 per troy ounce in recent months, is the most expensive of the platinum group of metals. It plays an important role in automobile catalytic converters since it is particularly good at reducing nitrogen oxide emissions in cars and trucks. Because the Environmental Protection Agency will soon be adopting a higher standard of emissions control, the demand for rhodium is almost certain to increase. Rhodium is also alloyed with platinum or palladium for use in furnace windings, thermocouple elements, and many other industrial applications. The price of rhodium as of this writing was approximately $5,200 per troy ounce.

Charting the Future

Where lies the future of the precious metal refining industry?

Secondary refining likely will continue out of necessity, since the production of precious metals from virgin sources has lessened because of a variety of factors. These include global turmoil; increasing interest rates, production costs, and capital expenditures; pressure to maintain the environment; labor strikes; and the all-important supply-and-demand fundamentals.

Therefore, the secondary refiner, able to recover precious metals from scrap, should remain a major player in the precious metals market and should continue to receive a mixture of products from which to reclaim the metals.