Scrap recycling

The recycling business has become an increasingly important segment of the precious metals markets. It gained more attention in recent years as market participants have looked to other sources of metal for manufacturing as prices rose sharply and traditional sources experienced supply interruptions.

Historically, however, recycling in precious metals markets has been almost entirely overlooked by market research groups — even though scrap supply accounts for between 10% and 30% of total market supplies in the major precious metals markets.

In terms of gold, the three main sources of supply are mine production, transitional economy sales, and secondary supply. The bulk of the supply of gold comes from mine production, South Africa being the world’s largest producer. Mine production used to account for almost three-quarters of total supply but now accounts for roughly two-thirds. Even as this market share has declined, total supply has continued to rise over the previous 25 years.

The market share lost to mine production has been partially absorbed by secondary supply. This includes the recovery of gold from melting down jewelry, coins and bars but also from some electronics and other sources of scrap. In 2001, this secondary supply totalled 22 million oz. (19 million oz. from jewelry, 2 million oz. from coins and bars and 1 million oz. from electronics).

For the silver market, recovery from secondary sources, including electronic scrap, is an even more important source of supply. Scrap accounts for 30% of total supply in the silver market and is projected to account for 208 million oz. of total supply in 2001. Of this total, 192 million oz. will come from old scrap; the remainder represents silver melted down from coins and bars, as well as scrap from India.

The old scrap component has been rising relatively sharply for the better part of the past decade. The main reason is that there is a fairly straightforward relationship between fabrication demand and secondary supply. In other words, as more silver is used in various applications, more silver is ultimately recovered.

The breakdown of this scrap component into its various sources is 80-90% from spent photographic materials and films, 6-7% from old electronics equipment and batteries, and 3-14% from various other sources.

— The preceding is from a presentation given to the New York, N.Y.-based CPM Group. The author is the associate director of marketing and research for the Institute of Scrap Recycling Industries in Chicago, Ill.