Start a Catalytic Converter Recycling Business

Today we look at a business that has been in the news for all the wrong reasons in recent times: the catalytic converter recycling business. But what is a catalytic converter and why has it been in such demand lately?

 What is a catalytic converter?
A catalytic converter is an exhaust emission control device that converts toxic gases and pollutants in exhaust gas from an internal combustion engine into less-toxic pollutants.

Why is it in such demand lately?
Catalytic converters contain precious metals such as platinum and PGMs (platinum group metals) such as palladium and rhodium and the price of these metals has skyrocketed in recent years in fact some by 1000%+. Not only has this caused record profit with mining companies (SA is a major producer, more than 75% of global platinum is mined in South Africa.).  This has also made catalytic converters in some cars to be valuable due to their precious metal content. These high prices have essentially made it worthwhile to extract the metals, (many items out there like computer motherboards contain precious metals but the cost and effort to extract exceeds the value of the metals.).

The catalytic converter’s construction is as follows:

The catalyst support or substrate. For automotive catalytic converters, the core is usually a ceramic monolith that has a honeycomb structure (commonly square, not hexagonal).

The catalyst itself is most often a mix of precious metals, mostly from the platinum group. Platinum is the most active catalyst and is widely used, but is not suitable for all applications because of unwanted additional reactions and high cost. Palladium and rhodium are two other precious metals used. Rhodium is used as a reduction catalyst, palladium is used as an oxidation catalyst, and platinum is used both for reduction and oxidation.

Upon failure, a catalytic converter can be recycled into scrap. The precious metals inside the converter, including platinum, palladium, and rhodium, are extracted.

–  Wikipedia

Price of gold: $1763 / ounce
Price of platinum: $988 / ounce (platinum is much denser than gold)
Price of palladium: $2639 / ounce
Price of rhodium: $17850 / ounce

The catalytic converter recycling business
Like most of the recycling businesses in SA the majority of buyers are just middlemen that will sell it further down the chain or export it, which is the same for most recycled material in SA. Most “recyclers” (glass, metal, paper etc.) are just collection points that package the material and resell it that is because very few companies actually have the capabilities to process (Mondi, Consul, PETCO, Rubber SA, Rose Foundation etc.), or in this case, refine the metals. This means that most “buyers” will simply sell it further down the chain. However, it depends on the capital and expertise available.

There are two opportunities here either the processor or refiner or the far easier to get into middleman which sells to the processor.

To process it will require money to buy it in, then the skills to extract the metals and obviously the premises to work from and they they have to resell the extracted metals. Whereas the middleman buys for one price and resells at another. However, even middlemen in this business need to know what they are doing as all catalytic convertors are different and are worth different prices, this is not like buying and selling scrap aluminium where you know you can get a certain price per kg providing it is aluminium.

How are prices determined
Established companies have a database they work from which contains the mass and yield of the precious metals and what each type of catalytic converter is worth. A lot people in this business use a app called “Eco Cat” as a guideline (while some companies use a XRF analyser). Eco Cat is a database of over 20 000 catalytic convertors and what they are roughly worth (based on their metal content), it is a paid app past a certain search volume. The price on this app is based on a US company but the nature of commodities means you get a pretty good idea of what refiners are paying. Some use this as a guideline, as in they will pay a discount or premium on top of the Eco Cat price. Common sense tells you that the Eco Cat price will be on the low side as the price data from a company that operates it is a large player and will pay as little as possible, they most likely have higher margins. However, if you are a middleman selling to a processor you need to know what database your buyers are using. If they are using Eco Cat and pay let’s say Ecocat +20%. Then as the middleman you can buy in at say Ecocat -30% and make enough margins to be profitable providing you have correctly identified the CATS. As a middleman, it is important to develop a relationship with a processor so you know exactly what they pay. Even if you have to go to the seller and take photos to send back to the processor.

How is this business operated?
This business has attracted a lot of people looking to make a quick buck, middlemen for middlemen.  Most scrap yard owners already know what they are sitting on so the low-hanging fruit is largely gone.

Location is very important if you are in a place where there is not many buyers. Even if people know that the catalytic converter on their scrap cars is now worth something someone still has to come and pay for it.

We are seeing some middlemen use the “broken gold” model that was used in densely populated areas years ago. Where the person operated with a scale and went around house to house and bought broken jewelly which they then sold to jewellers or refiners.  Can you walk around with an app and cash money, sure, but make sure it is an area that you are familiar with, South Africa and its culture has gotten significantly more dangerous in recent years.