January/February 1992
Industry experts predicted troubling times for those trading in gold and silver and discussed the possible effects of new regulations, but spoke well of the potential for autocat recycling at the recent Precious Metal roundtable.
By Si Wakeberg
Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.
Gold and silver bullion dealers—the "middlemen" among mines, central banks, and industry—can expect their industry sector to contract over the next year or two, with markets eventually returning to levels recorded prior to 1980, according to Scott L. Harlan, trading manager for Falconwood Corp. (New York City), addressing an audience at Scrap Processing and Recycling's Precious Metal Roundtable, held in New York City in early December.
On the other hand, those who recover platinum-group metals (PGMs) from automobile catalytic converters (autocats) can look forward to increasing metal recovery through the 1990s, predicted another roundtable speaker, Ellen A. Zadoff, senior market research analyst for Johnson Matthey (Valley Forge, Pa.).
In addition to commercial outlooks for various segments of the precious metal industry, roundtable speakers and attendees examined a number of issues facing all industry sectors, with discussions ranging from the effects of the general economic recession on the industry to general frustration with Environmental Protection Agency (EPA) regulations and the Basel Convention on the Control of Transboundary Shipment of Hazardous and Other Wastes.
Gold Profitability Plummets
Declining profitability and overcapacity point to a return to pre-1980 levels for the gold industry's markets, according to Falconwood's Harlan. Tracing the gold and silver markets through the 1980s, he detailed the decade's "high prices and high volatility ... large margins, wide trading ranges and abundance of small and big speculators."
Improvements in technology, he said, led to mining expansion, particularly in North America and Australia. In 1985, Harlan noted, North American annual gold output was 169.5 metric tons (mt); by 1989 it had soared to 417.5 mt—an increase of more than 240 percent! In Australia, the rise was even more dramatic during the 1985-1989 period: a whopping 330 percent.
The mines, Harlan noted, had to hedge a majority of their future output, which led to "very large forward gold sales and the use of option strategies such as price protection programs." All this, he said, had a detrimental effect on the gold market, and by extension, on silver. "The volatility in the gold market became very low," according to Harlan, and this trend has continued through 1990 and 1991.
Further contraction is likely, Harlan predicted, explaining, "There is not enough activity to warrant the number of dealers currently on the scene."
Yet, looking ahead, he was moderately optimistic, emphasizing the many problems facing the Soviet Union and South Africa, the world's largest producers of gold and platinum, as well as the current instability of banks and rising consumer prices. "Gold could rise back to $400 per troy ounce by the fourth quarter of 1992," he said, noting that silver prices would likely follow gold's upward movement.
Surveying Soviet Mines
Leanne Baker, an analyst for Salomon Brothers (New York City), presented roundtable attendess with her impression of gold and platinum production in the Commonwealth of Independent States (or whatever the former Soviet Union is now known as), based on what she called a "whirlwind tour" of the commonwealth's mining regions of Magadan and Norilsk in August. It was her second visit, but she cautioned that "even a firsthand trip doesn't shed much light" on such a vast and complex country.
The Magadan area is rich in mineral resources and is the area's principal gold-producing area, turning out between a quarter and a third of the country's total gold supply, Baker noted. The mines and smelters are operated by technically trained personnel, she said, noting how impressive it is that they continue to produce in light of vexing problems, such as antiquated equipment and "backward" technology. In fact, Baker said, viewing these operations was like "stepping back in time." Much of the equipment didn't seem to function properly, she noted, and the concentrator and mill visited were completely shut down. Furthermore, she said, the region appeared generally depressed.
Norilsk, on the other hand, a region that produces copper, nickel, cobalt, and platinum-group metals, is "a world-class operation," Baker reported. "It is probably the most industrialized area on earth," she said, emphasizing that it suffers from major pollution problems, reportedly emitting a million tons of sulfur into the atmosphere annually.
Baker said that the metal markets in the area are in search of direction and are likely to be troubled by labor problems, inflation, and the danger of increased pollution. But, she said, there is no denying the commonwealth's impact on the world's markets for platinum-group metals and gold.
Consolidated Goldfields, a South African gold-mining concern, has estimated 1990 Soviet gold output at 260 mt and 1991 output at 200 to 225 mt, reported Baker. Some official estimates reported by the then-Soviet Union optimistically predict 1992 output at 300 mt, she noted, but there's widespread skepticism that this level will be reached. Baker noted also that domestic consumption of gold—and platinum—in the commonwealth has been rising. Domestic gold consumption may now be in the neighborhood of 100 to 150 mt per year, she said, not 60 mt as commonly believed.
Autocat Role Increasing
The estimated total world supply of platinum in 1991 was about 4.09 million troy ounces, up 360,000 troy ounces from the previous year as a result of higher production levels, Johnson Matthey's Zadoff indicated. She admitted, however, that it is difficult to factor in Soviet supplies due to the uncertain level of sales of platinum to Western consumers.
Meanwhile, demand for platinum is expected to have risen 5 percent from the previous year, to 3.88 million troy ounces in 1991, Zadoff said. Autocat needs in Europe have helped spur this demand, she reported, offsetting declines in North American and Japanese demand. As a result, a platinum surplus of 210,000 troy ounces was expected for 1991, said Zadoff.
For palladium, too, supply has outdistanced demand, she reported, with supplies expected to have increased by 11 percent, to 3.9 million ounces, while demand is expected to have grown by 270,000 troy ounces, to about 3.7 million troy ounces, resulting in a surplus of approximately 230,000 troy ounces.
Rhodium supply was expected to have declined by 4.3 percent—due to reduced supplies from the Soviet Union —but the drop was offset by a rise of 14.6 percent in South African production and by metal recovered from autocats, reported Zadoff. In fact, she estimated, 17,000 troy ounces of rhodium—as well as 225,000 troy ounces of platinum and 90,000 troy ounces of palladium—were were recovered from catalytic converters worldwide in 1991.
Zadoff traced the history of autocat recovery, calling the removal of catalytic converters from obsolete automobiles "a routine part of the scrap process for the majority of scrap dealers." The total quantity of autocats collected in North America in 1991, she indicated, was expected to be about a million pounds short of the 18 million to 19 million pounds collected in 1990 "as a result of three years of declining vehicle sales, as well as the continued reduction in pounds of pellets [relative] to total material collected." Nevertheless, she pointed out, actual platinum recovery from autocats was expected to have remained at 1990 levels and the increased use of monolith converters should have resulted in increased recovery of rhodium.
The recovery of platinum-group metals from autocats is expected "to escalate at a healthy pace through the 1990s," Zadoff said, listing as explanations more stringent emission standards, higher precious metal content per catalytic converter, improving collection rates, and new legislation abroad that will increase autocat use.
Environmental Headaches
Calling environmental regulations "a maze" too elaborate to detail during the session, Robert T. Jacobsen, vice president of Sabin Metal Corp. (Scottsville, N.Y.), targeted his comments to air pollution, the Resource Recovery and Conservation Act (RCRA), and environmental controls in international trade. In all instances, he emphasized, complexity is the rule.
Jacobsen said that 1990 saw a major revision of the federal air pollution law, which will have a great impact on the precious metal industry, though it may be gradually felt. He noted that the Clean Air Act now names 100 specific pollutants.
In discussing RCRA, Jacobsen gave a week-by-week example of frustration found while seeking an exemption for precious metals in regulations under one section of the law in 1991. It was a tale of constant jockeying with government officials, interminale correspondence, and phone calls that did, finally, end in approval by the EPA. Jacobsen declared, however, that the biggest future danger is that "the EPA will continue to make ad hoc judgements."
Threatening the industry on an international level, he said, is the Basel Convention, a United Nations-sponsored agreement reportedly initiated by Third World countries trying to control transboundary shipments of hazardous materials. Under Basel, he reported, all secondary materials could be regarded as hazardous waste, and, thus, could be restricted from interational trade. Under pressure from many groups, however, the Organization for Economic Cooperation and Development (OECD) has been working on a multilateral agreement that would define secondary materials separately from waste.
Three lists of material, it appears, will exist under the OECD scheme: green, amber, and red. Items on the green list would be allowed to be shipped between signatory countries without controls, according to Jacobsen, who noted that precious metals in nondispersible form likely will be on the green list. He noted, however, that the definition of "dispersible" is not yet final. Dispersible metals, such as catalysts, he said, will probably be on the amber list and would be covered by notification requirements in trade. Red list items, such as some cyanides, would require specific approval prior to shipment by both countries involved in transactions, he said.
The convention will go into effect 90 days after 20 countries have ratified the agreement, which is expected in mid-January, Jacobsen concluded. •
Industry experts predicted troubling times for those trading in gold and silver and discussed the possible effects of new regulations, but spoke well of the potential for autocat recycling at the recent Precious Metal roundtable.