Converter Recycling: Hold. Fold. Sell.
In the iconic words of The Gambler, “You’ve got to know when to hold them, know when to fold them, know when to walk away, and know when to run.” The words of that song feel very true today with the platinum group metal (PGM) prices coming off the highs of 2021 and 2022 and the average converter price dropping by more than half. Many of you are holding converters. More than normal. More than ever. A dangerous strategy at a time when converter theft is at an all-time high. Over the weekend, one recycler had 10 gaylord boxes of converters stolen. The thieves entered the side of his metal building and were caught on video robbing the facility for over two hours between Saturday night and Sunday morning.
Where are the PGM prices going? If only we knew. In times like these, it’s easier to look back than forward. With a strong dollar, high inflation, recessionary pressure and supply disruptions in Russia and South Africa, a comparison can be drawn between today and the early 2000s. Between the end of 2000 and the beginning of 2002, Russia had a supply disruption and palladium spiked to $1,100 per ounce then dropped by over 60 percent when the production was restored. The Ford Motor Company stockpiled without hedging and lost over a billion dollars. Then in March of 2008, with supply disruptions from South Africa, platinum hit a record-high at the time of over $2,250 per ounce, a spot price more than twice that of gold. It subsequently fell to $774 per ounce in November. Within three years, the platinum price more than doubled to $1,887 per ounce. In 2008, rhodium touched $10,025 an ounce just before the global financial crisis hit, but the metal would drop 90% before the end of that tumultuous year. The price spike would lead to end users thrifting the metal and substituting palladium for rhodium going forward. It would be another 13 years before rhodium would spike again to nearly $30,000 an ounce.
This history lesson reminds me of what I was taught at my first job out of college at Putnam Investments in Boston. Mutual funds are a long-term investment. Think about a three to five to ten-year performance horizon. The same timeframe can be seen with movements in precious metal pricing. Spikes and rebound do not happen overnight. You can study the SFA (Oxford), Bloomberg charts that accompany this article to see the price drivers for each of the platinum group metals. (Updated September 2022) At Putnam, I also learned about dollar cost averaging a strategy to manage price risk when you are buying stocks, bonds, ETFs, and mutual funds. It involves investing the same amount of money in a target security at regular intervals over a certain period, regardless of price, to obtain the average buy price over time. I always think of this when it comes to selling scrap catalytic converters into the market. If you continue to sell converters as you purchase cars, regardless of price, you will obtain the average price for each metal year over year. You do not have to hold or fold. You can sell. And you can sell with a strategy. If you are stockpiling converters, sell the most recent load you have at today’s prices. If you work with a reputable processor, you can process your back log loads (minimum lots size required) and put the metal on account to be sold later. As we have mentioned in other articles, platinum is going to be a very important metal for the hydrogen economy and many analysts believe it may double or quadruple, surpassing palladium again, in the next three to five years. Rhodium is still key to reducing NOx, so as emission standards increase around the world, the use of rhodium will also increase.
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