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Junkyard Palladium Growth, an Answer to Waning Resource

Junkyard palladium is quickly becoming a growth market as mined supplies of the silvery-white metal used to control harmful auto emissions run increasingly short.

With palladium prices up 83 per cent since mid-August, recyclers are gaining an edge at a time when some producers are forecasting a deficit of about 1 million 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 90 per cent 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, 3.2 million ounces were returned to the market, up 11 per cent 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, by telephone. “It’s a significant portion of total supply.” Spot palladium climbed one per cent to $1,546.74 an ounce at 2:34 p.m. in New York.

About 80 per cent 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’s mined primarily in Russia and South Africa, and mostly extracted as a secondary product to other metals, such as platinum or nickel.

The problem moving forward, according to Cooper, is that there are “no fresh investments to increase output in either of the two regions.”

Falling Short

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.”

Three Grams

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 99.95 per cent 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 U.K.

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.

“The EU has a binding target of cutting emissions by at least 40 per cent by 2030 from 1990 levels, while China aims for 26-28 per cent cuts from 2005 levels,” Ong wrote in a report.

There are other factors helpful to the recyclers as well. The volume of vehicles sold for scrap increased last year as the price of steel climbed, making it more profitable to scrap old cars, according to Peter Duncan, general manager of market research for Johnson Matthey Plc, a U.K.-based speciality chemicals company.

While automakers could throw a wrench in palladium’s use by switching to platinum, which has many of the same characteristics, it’s not an easy change. Research shows that technological advances are needed before platinum can match the performance of existing palladium-based catalytic converters, and analysts have said it could take as long as 18 months to incorporate such a switch.

In the meantime, recyclers are doing their best to take advantage of the deficit.

“The market trends are clear,” said Uve Kupka, the president for North America at Heraeus Precious Metals, in an email. His company is now “aggressively” investing in its global recycling business, he added.