January/February 1990
Reuse of old silver accounted for 29 percent of refined silver consumption in 1988. But experts at a recent conference explained that a greater recycling rate may be hindered by low silver values, declining precious metal content in manufactured components, and a large surplus of refined metal.
By Robert J. Garino
Robert J. Garino is director of commodities for the institute of Scrap Recycling Industries, Washington, D.C.
In 1988, according to Handy & Harman estimates, the U.S. industrial sector consumed approximately 120 million troy ounces of refined silver. In addition, some 7.6 million troy ounces were consumed in American coinage. To meet that total demand for silver, precious metal refiners and smelters consumed silver-bearing ores and concentrates, old coins, and, of course, scrap.
How important was scrap in meeting 1988's demand? According to data provided by the Silver Institute, Washington, D.C., silver refiners produced approximately 105.6 million troy ounces of silver during the year, of which nearly 65.0 million troy ounces can be traced to scrap sources--either in the form of obsolete scrap (approximately 34.8 million troy ounces of used photographic films and other silver-containing products) or new scrap (30.0 million troy ounces of in-plant clippings, spillage, sweepings, etc.). In-plant (new) scrap, however, generally is considered continuously revolving inventory and, in most analyses, is not specifically identified in scrap totals. "Secondary production" almost always refers to the use of old scrap. Using these figures, the 1988 silver recycling rate--the amount of old scrap recycled as a percent of total consumption--was 29 percent.
It is against this backdrop that precious metal executives from various segments of the silver industry discussed secondary silver's future at a September seminar held in Washington, D.C. The gathering was jointly sponsored by the Silver Users Association (SUA) and the Institute of Scrap Recycling Industries (ISRI), both of Washington, D.C.
Damaging Prices
"Prices are too low today," commented Jeffrey Christian, principal of the CPM Group, New York City, at the outset of the program. If they remain low much longer, he warned, they will inflict "permanent damage" on the mining industry--"more than what low prices have already inflicted." Why are prices so low? Christian identified three factors: increases in new mine supply and secondary recovery, lack of investment buying, and above-ground silver stocks.
Current recovery rates of silver from scrapped items have been acting "uncharacteristically," Christian said, in that low prices have not reduced scrap flows. Worldwide scrap recovery was estimated by Christian to have increased from around 103 million troy ounces in 1986 to an estimated 129 million troy ounces for 1989--a 25-percent increase. Over the same three-year period, silver prices dropped 20 percent.
He attributed the recovery increase to positive price incentives in 1987, strong growth in demand for fabricated items--thus linking higher scrap recovery with higher manufacturing output--and a "secular increase" in recovery of photo-finishing scrap.
Buyers Become Sellers
In contrast to the 1960s when investors were net buyers of silver, the 1970s saw investors become net sellers, observed Christian. Investors again started buying in 1979 but, he said, "during the past year or so, they have backed away from the market. ... While investors were net sellers of bullion in the 1970s because they wanted to cash in on higher prices, this time they appear to be net sellers because they simply do not want silver."
In discussing the third element negatively affecting silver prices--increasing stocks of refined silver--Christian was careful to differentiate between "market stocks" and "other above-ground" inventories--not all of which, he said, are available to the marketplace. Since 1979, however, investors have taken on approximately 1.1 billion troy ounces of silver that had been available for stock. According to Christian, it will probably take prices "well above $10.00 per ounce" to get a significant flow of that silver back into the marketplace.
The Refiner's Dilemma
Ron Rosenson, president of Behr Precious Metals, Rockford, Illinois, and chairman of ReMA's Precious Metals Subcommittee, offered seminar participants a refiner's view of competition for precious-metal-containing scrap. Of particular concern to him is the fact that recovery rates have been trending lower, while operating costs to the refiner continue to escalate.
According to Rosenson, since 1980 the precious metal content in manufactured components has been reduced drastically. He noted, for example, that gold-plated brass made 10 to 15 years ago usually contained between 0.50-percent and 1.00-percent gold. Today, he said, the gold content of a similar item could be as low as 0.01 percent to 0.02 percent--"too low," he said, "to warrant refining." A similar scenario exists for silver content, which has gone from between 2.0 and 4.0 percent down to 0.5 percent.
As the precious metal content is reduced, Rosenson believes refiners' ability to economically handle such materials becomes increasingly difficult. Instead of going to a secondary precious metals refiner, Rosenson warned, these scrap metals might find their way to brass ingot makers or brass mills, with their gold and silver contents "lost forever." However, he said, silver reclamation from scrap sources is still necessary as a supplement to current mine supplies. He pointed out that recycling is a value-added industry that reduces overall waste generation and conserves natural resources.
Precious metal refiners also are seeing increasing costs of insurance (if it is available at all) as a result of well-intentioned laws and regulations, according to Rosenson. These costs--plus personnel time for record keeping, training, and compliance; new equipment purchases; and inflation--are forcing toll refiners to bring their charges in line with their operating expenses. "We cannot look to the gold and silver markets to make a profit," concluded Rosenson.
To assure precious metal recycling in the future, he said, industry and government need to strengthen their working relationship.
Technological Advances Reducing Silver Use
Donald A. Corrigan, vice president for research and development, Handy & Harman, Fairfield, Connecticut, in looking at available statistics on secondary silver sources, noted that silver scrap recycling didn't get much attention in the last decade. In 1970, according to Corrigan, the amount of silver recovered from scrap was "considerably less" than half of what was recovered in 1989. He reckoned that, currently, scrap available from photo-market sources "probably represents 75 percent of the silver recovered," and that photographic recovery rates "probably exceed 90 percent of the potential." In other silver use areas such as electrical contacts, Corrigan believes, recovery rates are lower. Technological advances have reduced the amount of silver used per article, thus making recovery "more difficult and expensive," he explained.
Like Rosenson, Corrigan expressed concern over the reduction of silver content found in industrial scrap today. According to Corrigan, while the United States is well supplied with high-grade refiners (such as photographic scrap processors), smelting facilities nevertheless are required to process lower grades of precious-metal-containing scrap. To complicate matters, he said, the United States has extremely limited commercial capability in that area. Mining companies like Asarco, Kennecott, and Phelps Dodge have many of the technical capabilities required, but, according to Corrigan, their commercial interest in scrap sources ranges from small to nonexistent. Low-grade-scrap suppliers, therefore, may have to rely on smelters in Europe and Japan, he said.
U.S. recyclers face increasing difficulties recovering precious metals from low grades of scrap. But, despite low silver values and large overhangs of refined metal, seminar speakers noted that scrap's role in meeting silver demand remains important.•
Reuse of old silver accounted for 29 percent of refined silver consumption in 1988. But experts at a recent conference explained that a greater recycling rate may be hindered by low silver values, declining precious metal content in manufactured components, and a large surplus of refined metal.