With palladium prices up 83percent since mid-August, recyclers are gaining an edge at a time when some producers are forecasting a deficit of about 1million ounces for the year.
If the raw metal is removed from holders in 2019 at the same rate as 2018, “known inventories” may run out in about a year, said Nicky Shiels, a strategist at the Bank of Nova Scotia.
Recyclers can recover about 90percent of the metal from catalytic converters in junked cars for a fraction of the cost of mining it.
The result: As prices surge, so does the amount of reclaimed palladium. In the first 10 months of 2018, 3.2million ounces were returned to the market, up 11percent from the year earlier.
That’s almost half the amount produced in mines.
“Recycling is where we expect to see the strongest growth,” said Suki Cooper, an analyst at Standard Chartered Bank. “It’s a significant portion of total supply.” Spot palladium climbed one percent to $1,546.74 an ounce at 2.34pm in New York yesterday.
About 80 percent of palladium ends up in the exhaust systems of cars, where it helps turn pollutants into less-harmful carbon dioxide and water vapour.
It's also used in electronics, dentistry and jewellery. The metal is mined primarily in Russia and South Africa.
The problem moving forward, according to Cooper, is that there are “no fresh investments to increase output in either of the two regions.”
In 2019, the amount of palladium produced is projected to fall short of demand for the eighth straight year.
While some obscure metals are still more valuable, the price for palladium topped gold in December for the first time since the early 2000s.
Scrap dealers “are more aware of where palladium prices are. Over the past two years, we've been seeing an increase in recycling” driven by higher prices of platinum group metals, including palladium, and higher steel prices as well, Cooper said.
At the same time, she added, “scrap dealers are also recovering spent autocats at a faster pace.”
Recyclers recover about three grams of palladium from the catalytic converters in junked cars in a three-step process that starts with a dealer removing the catalytic converter.
Refiners will then use large semi- automated sheers to get to the palladium before it’s ground into a fine powder in a large milling machine.
To make it 99.95percent pure, the powder is then concentrated using an electric arc furnace and refined through a wet chemical process, according to BASF, which has recycling facilities in South Carolina, Michigan and the UK.
Meanwhile, all of this is happening as consumption of palladium increases at a time when production of electric vehicles, including hybrids, is also surging amid a global push to cut emissions for cleaner air, Eily Ong, an analyst at Bloomberg Intelligence said.
“The EU has a binding target of cutting emissions by at least 40 percent by 2030 from 1990 levels, while China aims for 26-28 percent cuts from 2005 levels,” Ong said.