As PGM (platinum group metals) prices are currently so strong, the catalytic converter now accounts for a large portion of the revenue for many vehicle dismantlers. Leading wholesale catalytic converter buyer and processor, F.J Church & Sons Ltd discuss the pros and cons of the options for Toll processing, which is a subject that many yards have considered whether to try this route or not and if this is the most cost-effective way.
Firstly, what does Toll processing mean?
Toll processing where a buyer/ processor provides a ‘return basis’/ refinery type service for buying material based on metal content/ outturn, rather than on an agreed spot price upfront. It is usually a large intermediary/ specialist buyer, that operates a sampling plant, brings the terms offered by a refinery to the local market.
Why Toll refine?
We are careful to try not to ‘talk people into’ toll refining, we try not to do this generally but are happy to support suppliers if this is the route they want to take.
Toll refining is the best option for yards wanting to attain the real value of their units. This allows smaller producers to access refinery type service and sell their converters on the market and access transparency on what their material is really worth. There is both an upside and downside to that reality. The UK converter market is so competitive that at times, moving away from the ‘grade off’ or ‘per piece’ selling method would offer less money for suppliers. Toll refining allows you to hold your stock ‘on the market’ yet unsold, vs in your yard in stock form.
A small portion of the market like to do this, however, with a couple of days of Palladium losing over 5% in value in an afternoon, suppliers have to go into it with their eyes open and understand the risk of having their material exposed to the market.
How does it work?
Once the material is at a processors’ facility, it will be de-canned (if required) and the monolith will be crushed and sampled in a sampling line. Once a representative sample is taken, it is analysed to offer a prepayment/ indication value of the material, whilst the final sample is sent for final analysis that will define the content for the whole parcel. This is often done using an assay performed by a 3rd party laboratory for added transparency.
Once the sample is produced and the content agreed, the material can be sold to offer market price protection, or left unsold until the supplier is happy to sell. Disputes on assays can be resolved via an umpire.
The prices or ‘terms’ are a set of return percentages, charges per kilo and per (gram) of metals refined, along with interest charges for prepayments and discounts for forward metal hedging.
These costs are unavoidable and we would advise caution against any processor that denies the existence of these costs, or don’t offer to show the alternative ways in which the charges are shown on the settlement paperwork. No processor is immune for refining and hedging charges, so in our opinion to deny they exist in order to avoid questions from a supplier should be a red flag.
What are the benefits of working with a Toll refiner, rather than directly with a refinery?
Generally, refineries don’t like to be ‘customer facing’ so Toll processing is an entirely relevant market position and is a process of consolidation of volume, rather than ‘second tier buying’, as some may think. Toll buyers tend to hold large volume contracts with refiners, and therefore can bring their experience of trading and preferential terms to pass on to suppliers.
Toll processors may bring to the table the same level of buying terms/ levels that a refiner would offer directly to producer of converters, along with additional benefits of faster turnaround of lots, support in areas such as converter code databases, de-canning facility more flexible and prompt payments and hedging facilities.
On parcels of over 250-300 converters, generally the economy of scale kicks in to see the benefit of processing vs spot buying. Below this level and if you’re already working with a competitive and fair buyer, you may not see a huge difference in revenues per converter. It suits a larger supplier generally.
How do you compare the results of a Toll processed load?
This is the difficulty. To move from bidding with 3-4 firms, to sending material to a processor with no way to compare what the outturn should be and how that compares to another buyer, can be risky. This may be appealing to some buyers but this is the part of Toll Refining where we would urge caution.
We recommend sending a 3rd party witness, or even direct witnessing by the supplier at the sampling facility, in order to audit the sampling process, oversee the sample preparation and walk away with the sample, this can then be tested by a verified & accredited laboratory.
To give you an idea of the importance of out-turns being more important than processing terms, 30 parts per million on an assay equates to roughly £1 per cat on the current prices. Outturn/ end value is everything, terms are the second consideration. It’s different to traditional ‘scrap metal prices mentality, but refining is a delicate and complex process where upfront terms do not give you the final say on what the value will be.
Know your indicators, i.e average yields per converter linked to the market, weight per unit etc before going into Toll refining. This makes the process easier to manage with the buyer. A good processor will walk through this with you and help you get to a point that you are comfortable with the information and how it’s reported.’
Let the money do the talking. Every processor has a different sampling method, each claiming to be the best, or hold the key to unlocking increased profits for the supplier.
The truth is that every toll processor runs a sampling line to value material, and aims to accurately sample your material and pays on that correctly.
No processor pays out on material, whether they be a refinery, smelter or local processor pay based on assays after it goes through the smelting or refining process, you will only ever get paid based on the sample from the sampling operation.
Claims of superior smelting furnace or refining technologies are irrelevant to sample results that are used to pay customers. We would urge suppliers to be wary of sales pitches and over simplified terms for a process such as this, given the fact that there are so many variables to take into account.
If you’re comfortable with accepting a little more risk, understand the drivers of the terms and you’re doing it for the right reasons, then Toll refining could certainly be a credible option.
However, with tight margins involved in converter buying industry, this is not necessarily a ‘golden egg’ that will transform the value of your converters, but rather a way to attain the actual value of your converter units.