The Scoop on Interest and Metal Price Discounts
In converter recycling, the best recyclers are partnering with companies that educate. We encourage our customers to sell on assay, the analytic procedure that measures the content or quality of a metal or ore contained in the catalytic converters. In this, the fourth installation of our series, Getting the Most from Your Converters with A Process You Can Trust, we are going to discuss, The Scoop on Interest and Metal Price Discounts.
In the first article of this series, Getting the Most from Your Converters with A Process You Can Trust, we emphasized Know Your Numbers. We strongly advise our customers to know their count before they sell. If you don’t have an accurate unit count, you won’t know your true average. In the second article, we discussed why it is necessary to your bottom line to Understand the Importance of Weights. If you’re missing weight during processing, you’re missing money. In the third article we explored Making Sense of the Assay Report and Final Invoice. Both can look like mumbo-jumbo, but when you understand what should be on them, you are less likely to fall prey to any unethical practices and leave money on the table.
Assay reports and final invoices are complex no matter how they are reported to you. Interest and metal price discounts only add to their complexity.
What is interest? Why do some companies charge interest and others don’t? The bottom line in refining converters is that you are getting paid on the assay result of the sample which typically takes 3 to 5 weeks; but the physical metal is not available for approximately 10 to 12 weeks which is called the metal out turn date. Therefore, any time you take a payment before the metal out turn date, there is interest. Basically, the refiner sells its metal early to make a payment for your metal which is not yet available. For this reason, the refiner charges you a simple interest amount on the number of days you use the metal and money before the metal out turn date. For example: $80,000 x .06 / 360 = $13.33 / day interest. $13.33 x 90 days = $1,200.00. The bottom line is that whether a company shows the interest on your invoice or not, it exists. And if you need the payment to buy more cars or pay overhead, it is just a cost of doing business. The increased margin you are realizing by selling on assay should help make up for any interest charges. If you do not need the payment right away, you can save the interest by waiting to take payment until metal out turn date.
If I wait to take payment will I be exposed to market price fluctuation? The answer is no. If you choose not to take an advance payment, with most companies, you can still hedge (lock-in) your metal prices even before you take any money. In this way, you have guaranteed your price against a downward market, but, likewise, you have also limited yourself against gains in an upward market. Remaining open, or playing the market, is considered speculating and should be a strategy only if you can afford to lose. Otherwise, locking in your metal prices, and continuous selling into the market when you ship, is risk neutral and resembles dollar-cost averaging in investing.
Why is the metal price on my invoice not the same as the price I see on the internet? The price you see published on the internet is the buy and sell price for investment grade metal or bullion. When you recycle scrap catalytic converters on assay and refining terms, you produce an industrial grade of precious metal known as sponge. This form of precious metal is sold back into the market place to make fresh applications. Precious metal in this form is discounted when it is sold. It is important for you to ask your processor how much they are discounting each metal on average so that you can track the price. Several factors can affect this discount. Because you are selling metal at a date in the future, your price is likely based on a futures price versus a spot (immediate cash) price. Expect the discount for Rhodium to be significantly more than Platinum or Palladium for two reasons: it is in shorter supply, and it has a miniscule trading volume. Often the price quoted for Rhodium is spot or whatever the refiner or trading desk can get for the metal that day versus a futures contract.
Selling on assay with refining terms is the best way to recycle scrap catalytic converters. In fact, it is the only way to recycle a converter. It happens once it leaves your facility whether you sell it this way or not. Learning the way assay and refining works and how to avoid unethical trading practices takes time, but if done properly with a reliable recycling partner, yields much greater value. Get the most from your converters with a process you can trust. Email or call me with any questions you have regarding this article or previous articles in this series.
For questions or copies of this article or previous articles in this series, go to www.unitedcatalystcorporation.com.
Becky Berube serves the recycling community as President of United Catalyst Corporation, Co-Chair of the Automotive Recycling Association’s Events Advisory Committee, and is an ExCom Board Member of the International Precious Metals Institute. She can be reached at 864-834-2003 or by email at firstname.lastname@example.org.