November/December 2011
Carmakers rely on platinum-group metals to control vehicle emissions. As vehicle ownership and emissions concerns continue to grow, companies that recycle PGMs from automotive catalytic converters look forward to strong demand and prices.
By Theodore Fischer
It’s no exaggeration to say that automobile catalytic converters, or autocats, have recently been worth more than their weight in gold. Inside these devices’ stainless steel shell are platinum, palladium, and/or rhodium, collectively known as the platinum-group metals. This summer, platinum and rhodium were selling for about $1,900 an ounce, more than gold at its summer peak. Even though palladium sells for less than half of that, the overall value and size of the PGM market have never been greater. By mid-October, prices had fallen somewhat, but market participants feel strongly that such dips are transitory considering the strong fundamental outlook for these metals and their use in vehicle emissions control.“The trend of the past two years, since the trough of the last economic cycle, has been of increasing sales of new vehicles on a worldwide basis,” says Ashok Kumar of A-1 Specialized Services & Supplies (Croydon, Pa.), a processor of automotive catalyst. That’s good news for both demand for secondary PGMs and future scrap supply, Kumar points out, because “more new cars generally lead to more scrapped vehicles.” With continued growth and efficiency in U.S. and European end-of-life vehicle recycling, he expects the volume of PGMs recycled from spent autocats to double over the next five years, to nearly 5 million ounces annually.
PGM Outlook
Johnson Matthey (London), a catalyst refiner and catalytic converter manufacturer, produces PGM market reports each May and November. Here’s a quick review of the three PGMs in automotive catalyst and where they stood according to the company’s May wrap-up of 2010 and outlook for this year:
--Platinum, a silver-white metal that can be more valuable than gold, is both one of the heaviest substances on Earth and one of the most malleable. It has a relatively high melting point and doesn’t corrode or tarnish when exposed to air. The 2010 platinum market showed a small surplus (20,000 ounces) as supply remained nearly flat and gross demand increased 16 percent. The gross demand for platinum in autocats grew by 43 percent, to 3.13 million ounces, in 2010 due to the strong recovery of the global automotive sector. Platinum recycling increased by nearly a third last year, to 1.84 million ounces. Johnson Matthey’s May outlook for 2011 was for platinum to remain close to balanced, with growth in both supply and demand and more recycling of platinum from autocats.
--Palladium, the bargain-priced PGM, is a lustrous silver-white substance with the lowest melting point of the elements in the group. Its ability to absorb 900 times its own volume of hydrogen at room temperature makes it valuable for air-purification equipment and as plating material in electronic components in addition to its role in catalytic converters. The palladium market was in deficit by 490,000 ounces in 2010 as supply grew only 3 percent, to 7.29 million ounces, and demand increased 23 percent, to an all-time high of 9.63 million ounces. Gross demand for palladium in auto catalysts increased 35 percent, to 5.45 million ounces, mainly due to higher global production of light-duty passenger vehicles and tighter emissions standards in some markets. Johnson Matthey expected palladium to remain in deficit in 2011 due to continued growth in demand and a reduced supply, though it expects growth in palladium recycled from autocats. Patricia Loferski, a mineral commodity specialist at the U.S. Geological Survey (Reston, Va.), agrees with that outlook, and she explains one factor behind the expected primary shortage: “Russia [has] a stockpile that they’ve been releasing onto the market for a number of years. It’s a state secret how much palladium is in that stockpile, [but analysts believe it’s] depleted or almost depleted.” That’s expected to reduce available primary supply in the next year or two, increasing the demand for secondary palladium.
--Rhodium, the rarest nonradioactive metal, is primarily valuable as a hardening agent for platinum and palladium. Its hardness, high melting point, high temperature stability, and corrosion resistance make it a key element in the production of glass, glass fiber, and nitric acid as well. The rhodium market tightened last year, though it still had a 114,000-ounce surplus. Gross demand increased 22 percent while supply fell 3 percent, to 751,000 ounces. Rhodium recycling from autocats increased 26 percent from 2009 to 2010, reaching 236,000 ounces, due to increased vehicle recycling. Johnson Matthey expected a surplus in the rhodium market this year due to primary production growth. Demand will grow as well, but automakers will seek to substitute less expensive PGMs where possible.
A more recent outlook for PGMs comes from Rohit Savad, a senior analyst with CPM Group, a New York-based commodities market research, consulting, asset management, and investment-banking firm, who spoke at ISRI’s Commodities Roundtable Forum in September. Savad was bullish on PGM prices, expecting them to remain high and increase even more in the next couple of years due to primary supply issues in South Africa (the world’s largest producer of platinum), a “booming auto market in developing countries, and greater emissions concerns.” By 2014, Savad expects PGM supply to catch up with demand, which will depress prices somewhat, but he expects prices to remain high compared with their historical levels.
Autocat Market Trends
PGMs’ high prices and demand growth have led to a boom in autocat recycling. “In 2003 there were 600,000 ounces of platinum being recovered from the autocats; nowadays it’s closer to 900,000 to 950,000 ounces,” says Jeffrey Christian, founder of CPM Group. Christian attributes the increase to the overall growth in the global automobile market (and related automobile recycling), the rise of PGM prices, and the growth of PGM and autocat recycling businesses in response to the higher prices and tighter regulation of end-of-life vehicles. Further, “scrappage schemes like Cash for Clunkers increased recycling of catalytic converters,” Loferski says. But she, too, points to high PGM prices. “Generally, when prices are up like this, the amount of recycling increases.”
You would think high prices would depress demand for these metals, but automakers have yet to find suitable, less-expensive materials for controlling vehicle emissions. That said, they’re trying to control costs as best they can. “As emission standards become stricter, the tendency would be [for carmakers] to use more PGMs,” Loferski says. “At the same time, you have the competing effect of ‘thrifting’ because of the high prices. Thrifting means using less, so when the prices of these PGMs go up—especially rhodium, which was up to $10,000 an ounce a couple of years ago—the loadings go down.”
Carmakers also try to substitute less-expensive PGMs for the more-expensive ones where possible, but the proportion of each varies according to the requirements of each car make, model, and fuel type. Diesel catalytic converters for the light-duty vehicles popular in Europe mainly require platinum. According to Loferski, the nature of diesel engines makes it impossible to substitute much more than 25 percent of the platinum with the much-cheaper palladium. “They’re trying to [use] as much palladium as they can, and in labs and some vehicles they can get up to 50 percent palladium, but mostly it’s around 25 percent.” Gasoline engines primarily use palladium and rhodium. Kumar explains that automobiles manufactured 12 to 15 years ago used a higher proportion of palladium, thus he expects the autocats he recycles through 2012 to generate increasing proportions of palladium. Supply disruptions in 2000 and 2001 spiked palladium prices, however, so autocats manufactured between 2001 and 2005 used increasing amounts of platinum and decreasing amounts of palladium.
What about hybrid and electric cars? All-electric cars don’t burn gasoline or diesel, so they don’t need catalytic converters or the PGMs they contain. Loferski doesn’t view electric cars as a major threat to the PGM market because “they will likely be a small part of the market,” and she thinks fuel-cell electric hybrids—which run mainly on platinum fuel cells—represent a great opportunity. “My understanding is that a fuel-cell vehicle would have a much higher loading of PGMs than a catalytic converter in a gasoline engine,” she says, and this greater demand could raise prices even higher. Aaron Kolb, general manager of Davis Recycling (Johnson City, Tenn.), which processes 30,000 to 60,000 autocats a month, says he’s not worried about electric and hybrid cars right now, either. “They could possibly affect the market if they became widely bought and used,” he says, but even if automakers stop selling gasoline-powered vehicles today, “there are millions [of them] on the road, decades of supply at this point.”
The Autocat Recycling Process
The process of recycling platinum-group metals from automobile catalytic converters begins with those who accumulate the autocats: auto dismantlers, scrap recyclers, muffler shops, autocat refurbishers, and peddlers. Rising PGM prices have changed the way scrap processors purchase and handle autocats. “We used to just purchase them with the vehicle, but now people are taking the time to take them off and bring them in when they come in to get paid” for the autocat separately, says Josh Carter, chief operating officer of Integrity Metals (Connersville, Ind.). “Ten years ago we used to buy vehicles with converters attached probably 90 percent of the time; now we’re lucky to find one, two, three in a hundred.” Rising prices also have forced scrap dealers to be more discerning about what they pay for each autocat. “We used to say, ‘Hey, you’ve got a converter? It’s 25 bucks,’” Carter says. “Now we’ve created an identification book, and we go through it with the customer, identify the make and model [of vehicle] it came off of, match it up with a picture, and put a value on it.”
Other changes in scrap dealers’ autocat purchases have been generated by the increase in catalytic converter thefts. An April 26 story in USA Today described how thieves use battery-powered saws to cut autocats out of vehicle emissions systems in less than a minute. Nationwide Insurance (Columbus, Ohio) warns its customers that vehicles that sit higher off the ground, such as trucks and SUVs, are particularly vulnerable because thieves can remove the autocat without jacking up the vehicle; vehicles parked for prolonged periods in shopping centers, commuter lots, and company parking lots—particularly fleet vehicles—also are sitting ducks. In response, scrap recyclers are taking extra steps to avoid buying stolen goods. “There’s been a lot of negative press about this line of recycling, but a lot of us are doing it in a legit fashion, just like any other transaction,” Carter says. “We scan your driver’s license and take pictures of your vehicle and the converters.” More than 20 states now have laws discouraging autocat theft, including measures that require scrap processors to check or copy the seller’s photo ID, retain records of transactions for five years, and make such information available to law enforcement.
Collectors sell the used autocats to decanners, who shear open the canister to retrieve the substrate, a ceramic or metal honeycomb or metal foil roll coated with an aluminum oxide-based washcoat. The washcoat contains a combination of the three principal PGMs along with other rare earth oxides such as cerium oxide and zirconium oxide. These metals are what react with the vehicle emissions, turning harmful gases into carbon dioxide and water. The decanners, too, must stay on top of the mix of PGMs in each autocat. “Some that were worth a lot are now worth less” due to changes in materials, says Malika BenRedjeb, an account executive with Integrated Recycling Technologies, which has autocat decanning and milling facilities in Milwaukee as well as Monticello and Rogers, Minn., that process about 60,000 to 80,000 units each month. “We test about 100 units a month to stay on top of the changes.” For example, in the past, diesel engines “always had low-grade material, but new domestic diesel vehicles” have a much higher grade of PGMs, she says.
After removing the substrate, decanners crush it (if it’s the honeycomb variety) or otherwise liberate the PGMs, mill the material, and take numerous samples for assaying to determine each batch’s exact elemental composition. Not much has changed recently in the chemical or pyrometallurgical techniques decanners use to process the substrate, Christian says, though negative-air techniques that keep the substrate from escaping into the atmosphere during decanning have become more common. The decanners sell the substrate, and often the high-grade stainless steel canisters, to smelters, both domestically and overseas.
Though many autocat processors handle honeycomb, foil, and even the older bead-filled autocats, a few companies specialize in processing just those that have a foil substrate, which are an estimated 5 percent of the world market. These converters contain a short coil of stainless steel embedded with the palladium, platinum, and rhodium washcoat. In the United States, “they’re most often found on Chryslers, diesels, and foreign high-performance vehicles,” says John Keating, chief operating officer of Duesmann & Hensel Recycling North America (West Berlin, N.J.), a processor of foil catalysts. Parent company Duesmann & Hensel International (Aschaffenburg, Germany) launched this U.S. tolling operation two years ago to cater to this market. The facility has the capacity to process 2,000 mt of foil autocats each year, Keating says. The process consists of cutting, shredding, and separating the shell, foil, and washcoat, the latter of which the company then mills, samples, and assays. The tolling approach means “we give our customers the option of managing [their] market exposure, keeping risk low,” Keating says. “With access to markets around the clock and around the globe, we can hedge [customers’] metals and offer advance payments, helping [them] improve cash flow.”
For decanners that buy autocats and sell the processed substrate, “market volatility has a huge impact” on the business, says Davis Recycling’s Kolb. In summer 2008, for example, PGM prices were “outrageously [and] inexplicably high,” BenRedjeb says. They have since fallen and not returned to those levels. That volatility affects both the value of the materials and the flow of autocats. When prices are low, “people get out of the market, or suppliers such as salvage yards and muffler shops hold on to [the autocats] waiting to see if the PGM market will go back up, which slows the flow down,” Kolb says. To cope with such volatility, Davis Recycling hedges its PGMs, “but you have to be careful hedging, too,” he says. “If the market shoots up tomorrow, you can shoot yourself in the foot by hedging too much.” His company doesn’t hedge on a daily basis, but on its expected purchases in the next two weeks. Such an approach is better for developing long-term relationships with suppliers, Kolb says. “It hurts us when [the price] shoots up, but when markets are going down, [suppliers] love us.” IRT hedges as well, “so we don’t have to lower prices on customers we’ve already got loads from,” BenRedjeb says.
Autocat Futures
In the not-too-distant future, Asia will become a fruitful source for recyclable autocats, say market watchers and participants. “The developing markets in the East, most notably China, India, and Russia, have been sharply increasing domestic auto production in recent years and should continue to expand further … as these and many other developing nations adhere to Euro 3 emission standards,” says A-1’s Kumar. He doesn’t expect a meaningful number of scrapped autocats from these countries to become available for perhaps another 10 years, however.
CPM Group’s Christian foresees 7 percent annual growth in the global automobile population, with corresponding growth in demand for PGMs. “As the amount of PGMs going into cars and coming out of cars as they’re taken off the road continues to increase, we expect the PGM prices to remain high, with tight supply relative to fabrication demand,” he says. “What we’re looking for is basically more of the same over the next eight years as what we’ve seen over the last eight years.”
Theodore Fischer is a writer based in Silver Spring, Md.
Carmakers rely on platinum-group metals to control vehicle emissions. As vehicle ownership and emissions concerns continue to grow, companies that recycle PGMs from automotive catalytic converters look forward to strong demand and prices.