March/April 1993
Precious metal processors and refiners addressed the industry's diverse economic, financial, and environmental issues at a recent roundtable.
BY SI WAKESBERG
Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.
Domestic and worldwide economic trends dominated the agenda at Scrap Processing and Recycling's Precious Metal Roundtable, held in New York City in December, as the event's six speakers examined a wide range of topics, including gold investment, silver recovery, catalytic converter recycling, and the effects of today's environmental regulations on refiners of precious metal scrap.
Refiners Take The Downs With the Ups
Offering a refiner's look at market trends, Seymour Graifman, chief executive officer of Federal Refining Co. (Newark, N.J.), noted that the domestic supply of precious-metal-bearing scrap has diminished in the past 10 years, a time during which the precious metal market fell from an "elevated" status to the "severely depressed market" of today. One major contributor to this reduction in the flow of scrap has been the recent economic recession, he said. "The jewelry industry, which consumes major amounts of gold and silver, is not manufacturing because the public is not purchasing," Graifman explained. "It's all a matter of supply and demand."
The supply of precious-metal-bearing scrap has also dropped due to product substitution, cuts in the U.S. defense budget, electronic miniaturization, and stringent environmental regulations. These regulations, Graifman asserted, have prompted many consumers of precious metals to relocate their operations from the United States to other nations, most notably Mexico, Puerto Rico, Taiwan, and Hong Kong. To make matters worse, he said, these environmental regulations, though well-intended, "are not understood by the agencies that enforce them, so organized confusion often results."
In contrast to the discouraging scrap scenario, Dominick J. Passaro, director of precious metals management for Technic Inc. (Providence, R.I.), found two reasons to be optimistic about the long-term future of precious metal refining. First, as more consumers seek alternatives for nickel—European jewelry, he noted, must contain no nickel to meet new European Community standards—"substitutes such as palladium are finding a niche." Second, he said, lower average silver prices have encouraged more research into the feasibility of using silver in such applications as contacts and coating on plastics, "as well as development of cyanide-free silver-plating processes that encourage more users to move to silver as a bright, inexpensive conductor and as a final finish."
In discussing the short-term future, Passaro was not quite as enthusiastic, cautioning attendees that although some refiners saw sales pick up in late 1992, it is "too early to tell if this is a trend that will be sustained, or if it's a temporary spike." Nevertheless, he predicted that, despite the low precious metal values seen in 1992, refiners "who remain in the business will see a brighter future."
Bullish on Gold
Turning specifically to gold, Henry J. Bingham, vice president of Van Eck Securities Corp. (New York City), made a case for the importance of investing in gold today, noting its ability "to protect monetary wealth from the debasement of other forms of money and credit, whether caused by inflation or deflation." To illustrate his point, he offered an example of how a lack of such investment can hurt: "the recent upheaval and continuing turmoil in the European monetary system," which, he said, marked the third time in this century "that a monetary system failed because of the absence of gold as the single fixed standard of value to serve as an automatic discipline of monetary policy." This experience, combined with the harsh economic times seen across the continent, he noted, could prompt some European banks to abandon their reliance on paper money and turn to gold as "the only safe harbor in a storm."
The outlook for gold is bullish, Bingham stated, because there are fewer options available today to hedge dollar investments, and the credit explosion has "deposited great pools of the world's principal currencies in the hands of investors and speculators everywhere." Moreover, Bingham noted that the debt structure worldwide "has created tremendous deflationary pressures, and the conflict between these pressures and government attempts to thwart them are about to reach a crescendo." All of these factors make gold "the perfect protection against the future decline in value of all paper money," he said.
Closeup on Photographic Silver
Looking at silver from a commercial perspective, Thomas J. Dufficy, executive vice president of the National Association of Photographic Manufacturers Inc. (Harrison, N.Y.), noted that, in 1991, an estimated 194.6 million troy ounces (t.o.) of silver was used in photographic products, with films accounting for 152.6 million t.o. of this demand and papers using the remaining 42 million t.o. The United States was the world's leading consumer of silver for photographic products in 1991, consuming 65.8 million t.o., followed by Japanat 59.4 million t.o.
In terms of recovery, approximately 160.1 million t.o. of silver was reclaimed for recycling in 1991, Dufficy said. Broken down by category, manufacturing scrap accounted for 27.2 million t.o.; processing solutions, 111.3 million t.o.; and discards, 21.6 million t.o.
Some recent photographic trends, however, could reduce silver consumption—and, thus, recovery—the speaker pointed out. Eastman Kodak Co. (Rochester, N.Y.), for instance, has introduced the T-grain silver film emulsion, which contains less silver, while the Helion X-ray system being market-tested by Polaroid Corp. (Cambridge, Mass.) uses no silver at all, instead employing a dry-imaging process that uses lasers and carbon-based film. Despite these advances, however, "silver-based systems will be with us for a long time to come," Dufficy emphasized.
Autocat Recovery Remains Strong
Domestic collection of scrap automotive catalytic converters "is strong and will remain strong," asserted Charles E. Cunningham, an associate with A-1 Specialized Services & Supplies Inc. (South River, N.J.). In 1992, domestic autocat recyclers processed 7.4 million converters and recovered 315,000 t.o. of platinum-group metals (PGMs), including 220,000 t.o. of platinum, 80,000 t.o. of palladium, and 15,000 t.o. of rhodium, he estimated. Based on yearly average metal prices, the recovered PGMs were worth about $115 million, he said.
Cunningham also noted the downward spiral of rhodium prices, which sunk from $5,000 per t.o. in 1991 to $1,800 per t.o. in 1992. He mentioned this to make a point about the effect—or, actually lack thereof—of PGM prices on autocat recovery: While PGM prices certainly help buyers decide what to pay for autocats, the "collective procurement prices for our industry as a whole surprisingly exhibit small influence upon mid- to long-term industry supply," Cunningham said. "Retired converters seem to enter and proceed through the recovery system with slight regard to industry pricing."
Cunningham also discussed the dearth of PGM refining capacity in the United States, which has been caused by many limiting factors, including labor costs, strict environmental regulations, tax policy, payout expectations, and the attractiveness of alternative investments. "These and other such factors not only discourage autocatalyst extraction and refining," Cunningham asserted, "they also discourage industrial activity in general."
There are also barriers that limit the entry of new autocat processors into the business. Most important, he said, there is "intense competition among processors for converter/catalyst supply," which has prompted processors and suppliers to form tight relationships and forced processors to improve their bids, thus squeezing profit margins.
Refurbishing Circuit Boards: A New Market Niche
Recovering the precious metals in circuit boards is nothing new to many processors, but Krueger Co. (Tempe, Ariz.) has found a new niche in removing, refurbishing, and reselling integrated circuits and memory chips from circuit boards, said Peter Dietl, the firm's general manager. The economic advantages of this approach can be substantial, he asserted, noting that certain chips can fetch up to $50 a piece when refurbished, compared with $1 a pound when sold as scrap.
In general, circuits and chips more than five years old are worth recovering for their precious metal content, while components less than five years old may be more valuable when refurbished, Dietl said. To avoid potential legal problems, Krueger focuses on recovering generic, undamaged circuits and chips, and it sells the recovered items for use in clone personal computers, he explained.
Precious metal processors and refiners addressed the industry's diverse economic, financial, and environmental issues at a recent roundtable.