Independents
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Boiler room
With metals prices up and down all year long, 2008 proved just how hot and pressurized the precious metals market could get for refiners.
By Michelle Graff
January 20, 2009
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| An employee in the midst of the smelting process at Richmond, Va.-based metal refiner Hoover and Strong, where workers put in overtime in 2008 to keep up with demand. Photo: Hoover and Strong |
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At refineries across America, it is as though somebody turned up the temperature in the oven both literally and figuratively, as employees log hours of overtime to meet customers' needs against the backdrop of wildly fluctuating precious metals prices.
Platinum prices reached new heights in 2008, peaking near $2,300 an ounce in March, and gold was right there with it, charging above the $1,000-per-ounce mark that same month.
But industry veterans say that what made 2008 truly remarkable was how quickly, and how far, prices fell.
"What makes this situation somewhat unique is not the price of precious metals, it's the volatility," says Matt MacQuarrie, vice president of sales and marketing for Imperial Smelting and Refining Co. in Toronto. "Major swings in the span of a couple of weeks and, in some cases, a couple of days, have left our industry somewhat shell-shocked."
A mere glance at precious-metals price-tracking Web site Kitco.com confirms that 2008 has indeed been a year of extreme ups and downs.
Gold hit its peak price of $1,020 an ounce on March 17, only to drop down to about $910 an ounce on March 20, a decline of more than $100 in just three days. That same month, platinum prices rose to nearly $2,300 an ounce on March 4, but, by March 10, fell $350 to about $1,950 an ounce.
The dramatic declines have continued apace: At press time in early November, platinum had plummeted to around $818 an ounce and gold to about $725 an ounce.
Mark Danks, sales and marketing manager for platinum and palladium jewelry products at Johnson Matthey's New York office, echoes MacQuarrie's observations and says his customers don't mind the high prices; it's the volatility that makes life hard.
A customer turning in metal for refining on Monday could see as much as a $60 swing in that metal's price by the end of the week, making planning for a business difficult.
The price pendulum also swings the other way--favoring retailers.
Torry Hoover, president of Hoover and Strong and a 26-year industry veteran, says at one point, the company paid $2,000 an ounce for platinum, only to have the price drop $1,000 before the refiner could move the metal.
In the end, he says, the violent price swings are not good for anyone--manufacturers, retailers or refiners.
"What goes up, must come down," Hoover says.
Inventory meltdown
Metal prices like these, of course, had jewelers clearing out their stockrooms to turn old inventory into quick cash.
It also had retailers posting "We buy gold" signs, in the hopes that customers lured in by the prospect of getting some money back for their old jewelry would spring for new pieces.
These type of returns resulted in a spike in business for refiners.
At United Precious Metals Refining in Alden, N.Y., company president Vincent Guadagna says refining was up a whopping 50 percent over the past year. His employees had to log hours of overtime, including working on Saturdays, to keep up with the rising demand.
United's customer base, Guadagna says, has expanded from about 10,000 clients to "anybody and everybody that could have jewelry."
He attributes the increase in business to the number of retail jewelers scrapping their own inventories, and their customers' old jewelry, for much-needed cash.
"What's happening, especially here in the United States, is it's tough when you buy something to pay your bills," Guadagna says. "Let's face it. Selling jewelry right now is not so easy."
Refining was up 10 percent at Hoover and Strong, where gold makes up the majority of refining material.
Hoover says the volatility that has existed throughout 2008 had its roots in 2007, when the weak fall and holiday seasons prompted jewelers to look for ways to shore up their losses in the new year.
"People started cutting back on jewelry long before signs of a recession," he says.
Hoover andStrong's Richmond, Va., facility was humming with activity through July. At one point, Hoover says, it was taking three weeks to turn out orders, whereas the normal turn is one week.
He says it reminded him of the high-priced-gold days of the 1980s, when Hoover and Strong worked to turn out product quickly, before prices dropped and the company got stuck with metals worth less than their purchase price.
"That's the biggest fear for a refiner," Hoover says. "Buy high, sell low."
White hot newcomer
In addition to gold, refiners say an increase in palladium helped fill their melting pots in 2008. Danks says Johnson Matthey saw a 25 percent rise in the amount of palladium submitted for refining, a fact he attributes to more widespread use of the metal in recent years. Meanwhile, the refining intake for platinum was down.
"I think we probably saw the effect of de-stocking in 2007, long before the price peak in March 2008," Danks says. "This is compounded by a decrease in platinum demand from the jewelry industry. While our own sales are strong at the high-end, the mid-level is struggling, so manufacturers are, of course, using less, therefore generating less scrap."
Guadagna also reports an uptick in palladium refining, as shrinking budgets have people looking for a substitute to higher-priced platinum.
Even at its peak, palladium prices, which rose to nearly $600 an ounce, couldn't even begin to touch platinum, which peaked at about $2,300 an ounce.
"Platinum is a far superior metal, but when there's a $1,700-an-ounce difference, there's a niche there," Guadagna says.
Still, he doesn't think palladium, which is a more difficult metal to cast, has staying power.
He says as the price gap narrows between the two metals-palladium had sunk to around $200 an ounce and platinum fell to about $818 an ounce at press time--jewelers will return to platinum.
"Now, with the way prices are, I think palladium might slowly go away," Guadagna says. "People prefer platinum."
Uncertain future
As world leaders try to determine how to sort out the current economic crisis, what 2009 will bring for the metals markets is anybody's guess.
MacQuarrie, of Imperial Smelting, saw a 22 percent increase in business in 2007, but volatility had him concerned, and he doesn't see prices calming down in 2009.
"Unfortunately, I don't think we're out of the woods just yet," he says.
Hoover predicts that gold, which was hovering in the $725-per-ounce range at press time, will linger in the $800 range in the near future.
While he doesn't believe the metal will ever return to a $500-an-ounce level, Hoover also views a return to $1,000 an ounce as being unrealistic.
He notes that the high prices for gold and platinum were not caused by demand but, rather, by the increase in price of other commodities, such as oil.
"The demand isn't there, especially for platinum," he says.
John Venditti, vice president of sales and marketing for Advanced Chemical Co. in Warwick, R.I, predicts stock market uncertainties will push prices up again.
"People are going to grab gold where they can and stockpile where they can," he says. "The dollar's worth nothing at this point. Gold's worth something."
Editor's note: This story first appeared in the December 1, 2008, print edition of National Jeweler.
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