January/February 1991
International political uncertainties and increasing environmental regulation set the stage for the Precious Metals Roundtable. By Si Wakesberg
Si Wakesberg is a New York City-based consultant to the Institute of Scrap Recycling Industries (Washington, D.C.).
Setting the theme for Scrap Processing and Recycling's Precious Metals Roundtable held in New York in December, Derek McCall, marketing manager for platinum group metal refining, Johnson Matthey (West Deptford, N.J.), noted that gold, silver, and platinum metals were "fundamentally weak and drifting lower." Silver, he said, had just hit a 14-month low and gold, despite events in the Middle East, has failed to stimulate interest. As for platinum, McCall asserted that "supplies in 1991 may, in fact, be in oversupply for the first time since 1984."
Despite these market developments, however, some speakers saw increased potential for precious metal recovery and even for precious metal usage. Nevertheless, such predictions were tempered by several speakers who highlighted the pitfalls facing the industry, including mounting environmental costs and expanding government regulation that may make operations more difficult for the industry. One speaker emphasized this dramatically: "The precious metal recycling industry sits on a San Andreas fault of potential national and international regulations."
A Good Year for Platinum
With demand for platinum at 3.6 million troy ounces in 1990--representing a growth of more than 3 percent over 1989 demand--1990 was a good year for platinum, said Carl P. Denney Jr., U.S. marketing manager, precious metals division, Johnson Matthey (New York City). He noted that "demand for physical metal has remained strong in all sectors except investment." In the industrial sector alone, he pointed out, demand for platinum increased by 105,000 troy ounces to reach 795,000 troy ounces. Greatest activity was shown by the chemical, petrochemical, and petroleum sectors, he said, with the jewelry sector growing as well.
Auto catalyst demand for the year should show a rise of 90,000 troy ounces to 1.55 million troy ounces, Denney reported, despite "a sizable downturn in the United States." The strong demand has been coming from Western Europe, principally Germany and France, he said. Auto sales in Japan, Korea, and Taiwan have also contributed to increased platinum demand, according to the speaker. As environmental protection measures grow in Eastern Europe, he added, demand for auto catalysts will continue to increase.
"Recovery of platinum from auto catalysts increased by some 40,000 troy ounces to reach a level of 215,000 troy ounces," he said. "This recovery increase was greatly stimulated by the high price of rhodium, which reached $7,000 per troy ounce at one point.
On the platinum group metal supply side, Denney noted, "all mines are looking toward expanding production" to meet anticipated demand in the mid-1990s, which, he said, could result in "some surplus of supply over demand in the next several years." Demand for palladium is expected to exceed supplies by about 30,000 troy ounces, he said, and rhodium demand, at about 386,000 troy ounces, is expected to outstrip supplies by approximately 13,000 troy ounces.
In response to questions, Denney said that substantial amounts of platinum have been entering Japan, but it is unclear whether this is Russian or South American material He also noted that, in 1990, between 8,000 and 9,000 troy ounces of rhodium were recovered from scrap in North America.
Gold Refiners Face Numerous Problems
Among current gold industry trends are a tendency toward reduced gold usage, replacement of gold with lower-priced metals, and increasing amounts of complex scrap materials for refining, said Richard DeSantis, division manager, Heraeus Inc. (Newark, N.J.). "These changing and diverse feedstock materials have dictated the need for refiners to constantly upgrade their processes and to include the latest pyrometallurgical and hydrometallurgical techniques and equipment," he pointed out. More modem refiners have installed the newest incinerators, furnaces, and chemical processing equipment.
These are only some of the issues facing gold refiners, however, he noted. They have had to invest hundreds of millions of dollars in environmental compliance programs, DeSantis said, in order to maintain approval status. These investments have gone into baghouses, scrubbers, electrostatic precipitators, and wastewater treatment systems, he said.
In addition, refiners must finance their inventories through complex leasing arrangements, the speaker noted. "Volatile gold markets make risk management by hedging on the commodity market essential for any refiner," he contended. Finally, gold refiners face the problem of security--during transportation, storage, and processing of scrap--as well as complications in the movement of fine metals and metal products.
Demand for fabricated gold is expected to increase, DeSantis said, noting that by 2000, "demand for gold in the United States is expected to exceed 200 metric tons, with jewelry remaining the principal use.”
The 1980s saw an average yearly price of gold ranging from a high of $612 to a low of $317 per troy ounce, he pointed out, adding that in 1990 the monthly average gold price ranged from a high of $411 to a low of $352. DeSantis ended on an upbeat note: "With gold consumption anticipated to increase year by year, the need for recovery from primary and secondary sources will always exist."
Low-Grade Silver Scrap Can Be Profitable
Allison Sloan, executive vice president, Sloan Precious Metal Co. (Chicago), discussed handling low-grade silver scrap, which she defined as any material containing less than 2 percent silver, including printing and lithographic, medical X-ray, and industrial X-ray film scrap.
"In the last five years," Sloan said, "Kodak has committed more than $200 million for a new sensitizing facility in Rochester and more than $400 million for facilities in Europe." This, she insisted, seems to contradict reports that electronic imagery will replace the use of silver in film in the foreseeable future. Instead, she said, Kodak appears to be working to produce hybrid products that work in conjunction with electronic imaging techniques.
With silver prices around the $4-per-troy-ounce mark, Sloan said, film scrap handlers--including generators, dealer processors, and refiners--are "adapting to lower values since this is a commodity that can and will be recycled profitably for years to come." Silver-plated materials, however, she said, have become uneconomical to recover except in special cases.
Higher precious metal prices have given rise to new technologies that use less precious metals, she said, pointing out that in the past silver made up 2 to 4 percent of electronics materials, but now averages only 0.5 percent.
In suggesting some guidelines for handling low-grade silver scrap, Sloan emphasized that it doesn't make sense to hold such material. Nevertheless, she concluded, low-grade precious metal scrap materials are being and can be handled profitably.
Growing Environmental Challenges
The major challenges facing the precious metal industry arise from the possibility that environmental regulations could become so stringent as to include all secondary precious metal refining under hazardous waste handling rules. So warned Walter D. Ramsay, an Arlington, Va.-based industry consultant. In addition to environmental regulations, he said, there is potential for a ban--"hopefully, a temporary one"--under the terms of the Basel Convention for the export of products destined for recycling overseas.
These challenges, as serious as they are, are not inevitable, Ramsay pointed out.
Discussing the effects of the recently reauthorized Clean Air Act, he noted that the response of the industry was "just a sigh of relief because the worst-case scenario had been avoided." However, he noted, there is "a growing feeling that all recycling should be covered by some sort of regulation," so the industry is seeking self-regulation m order to safeguard the environment and still permit efficient operation.
Ramsay detailed the Basel Convention on the Transboundary Movement of Hazardous Materials and Their Disposal, warning that the convention "will govern virtually all waste movements ... and the European Community has declared all recycling to be a form of waste treatment, thus governed by Basel." Noting that $500 million worth of secondary precious metals are exported annually, he said this could present a major problem to which no solution is yet in sight.
Assessing Gold as an Investment
Gold, when included in a diversified portfolio, faces reduced risk and enhances the rate of return on the portfolio, according to Richard Scott-Ram, chief portfolio strategist and economist for the World Gold Council (New York City). Scott-Ram, however, emphasized the "diversification" factor and said that "the best allocation of assets in a portfolio is achieved by aiming for a portfolio mix.”
Through a series of illustrated charts, he pointed out that gold, by itself, can be a volatile investment, but its inclusion in a standard portfolio "often reduces its risk." He stated that a diversified portfolio that includes 10 percent of its assets in gold, 1.5 percent in stocks, and 48.5 percent in bonds "outperforms portfolios excluding gold without increasing the level of risk." He pointed out (on the basis of a study) that since 1975, there has only been a loose association between the movements in the price of gold and of U.S. stocks. In conclusion, Scott-Ram indicated through use of his charts that "there is a higher confidence level for a given average rate of return in the case of a portfolio with gold than one without gold."
Ronald Rosenson, Behr Precious Metals Inc. (Rockford, M.), who chairs the Institute of Scrap Recycling Industries's (ISRI) nonferrous committee, opened the meeting and greeted the attendees. He then introduced ReMA First Vice President Arnold Gachman, Gachman Metals Co. (Fort Worth, Texas), who briefly welcomed those present and discussed some of ReMA's current activities. •
International political uncertainties and increasing environmental regulation set the stage for the Precious Metals Roundtable.