Platinum, Palladium, and More

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By Joseph Cafariello

Monday, January 13th, 2014

Raise the price of anything high enough and people will find ways of dealing in it. Ever since the value of precious and base metals started rising in the middle of the last decade, the trading of these metals has increased not just on commodity markets but on black markets as well.

You might remember news reports of copper statues in public squares being sawed-off and trucked away in early 2011 when copper hit $4 a pound. Or even people with gold and silver fillings selling a tooth or two. A rare occurrence, but it happened.

Now platinum and palladium are all the rage. The two metals have held their value better than gold and silver lately, with platinum currently trading in the low $1,400s per ounce, some $200 higher than gold.

You might never think about the value of platinum or palladium until you try starting your vehicle some morning, only to find it sounds like a monster truck. A peek under your vehicle reveals that you have just been the latest victim of a crime spree sweeping across the nation and around the globe — your catalytic converter has just been stolen. A local street gang is probably just now delivering one to a black market scrap dealer who will dissect it for the few grams of precious metals it contains.

Well it’s payback time. No more will you sit by and let yourself be the victim of scrappers. You have two ways of protecting yourself. The first is to know what the thieves are after and what your level of risk is. The second is to know how you can get a little piece of the scrap metal action yourself.

Only you’ll be doing it legally, by investing in a few scrap metal companies that could prove profitable enough for you to make like a thief without ever breaking the law.

Protecting Your Precious Platinum

With uses in jewellery, dentistry, watchmaking, electronic circuitry, even instruments both medical and musical platinum and palladium are much more easily obtained than most realize. Especially from automobiles.

The catalytic converter attached to your vehicle’s muffler contains a small honeycomb-pattern plate lined with platinum or palladium — sometimes with rhodium or gold — to trap carbon particles and other emissions from your engine’s exhaust. Although converters contain only a few grams of the precious metals, what thieves can sell on the black market or to scrap dealers for $100 to $500 can cost you as much as $1,000 to replace.

Being about the size of a muffler, catalytic converters can be easily concealed in a gym bag or back pack. And they aren’t very difficult to remove. Using a sawzall, blowtorch, or other metal cutting implement, thieves can hack off a converter in about three minutes.

Since it requires crawling under a vehicle with enough elbow room to hack away, thieves will mostly target SUV’s, trucks, buses and vans that sit a little higher off the ground than normal. That’s your main risk factor if your vehicle has ample ground clearance.

Another, of course, is where you park. Dim lighting, fences, walls, hedges or other obstruction will increase the likelihood of your vehicle being targeted.

Whenever possible, park your vehicle in a secured garage or in well-lit areas. An average car alarm should be enough to detect the sawing motion, but not always. Having a mechanic install a guard plate is another option, which could cost about half the price of one converter replacement, and thus worth the investment. Just be certain there are plenty of screws and bolts in places that are difficult to reach when not on a hoist.

Scrap Metal Investing

There is a legitimate way of taking advantage of the scrap metal business yourself by investing in companies that salvage precious metals out of discarded equipment and parts.

Here are just three companies of varying market cap to choose from. While they all took a pounding as they passed through the fire of the 2008 market melt-down, they have since been able to refine themselves into strong companies that have proven their metal with solid gains.

Commercial Metals Company (NYSE: CMC) is a $2.4 billion mid cap that manufactures, recycles, and markets steel and metal products, and related materials and services. through 31 scrap metal processing facilities to steel mills and foundries, aluminum sheet and ingot manufacturers, brass and bronze ingot makers, copper refineries and mills, secondary lead smelters, specialty steel mills, high temperature alloy manufacturers, and other consumers. (Yahoo! Finance) Rising from $9 a share in 2011 to over $20.50 today, it has gained some 127% in 2.5 years with a decent 2.3% dividend yield.

Schnitzer Steel Industries, Inc. (NASDAQ: SCHN) is a $775 million small cap that manufactures and exports recycled ferrous metal products worldwide. buys, collects, processes, recycles, sells, and brokers ferrous scrap metals, as well as processes mixed and large pieces of scrap metal into smaller pieces by crushing, sorting, shearing, shredding, and torching. (Yahoo! Finance) It has risen a modest but decent 26% from $23 to $29 since 2012 while paying a 2.6% dividend yield.

Metalico Inc. (NYSE: MEA) is a $115 million micro cap that engages in ferrous and non-ferrous scrap metal recycling, platinum group and minor metals recycling, and lead metal product fabricating businesses. The company also acquires unprocessed scrap metals primarily in local and regional markets and sells to consumers in the United States and Canada, as well as to exporters and international brokers. (Yahoo! Finance) While the latest recession melted the company from $19 to $1.25 over the past five years, the stock has risen to $2.50 over the past six months as metals prices seem to have stabilized.

Do It Yourself?

There is, of course, one other means of investing in the business of scrap metal, and that is to break out on one’s own, buying scrap metal wherever you can find it and extracting the metal yourself. Only there are two serious dangers to consider:

Firstly, there is the extraction process itself, which entrepreneur Steven Gee of Hornsby, Tennessee describes as very hard and dangerous. It is a process that is regulated under EPA standards, he explains. There are 3 acids in the process and it becomes very explosive and at times it does explode. Before you find all there is to refining your own, he cautions, think about the people around you and the laws of the land.

Secondly, even if you are simply going to act as middleman, collecting scrap metal from locals and then selling it to the larger scrap companies, you have to make certain you know where the metal you are receiving has come from. You can be held liable if stolen property is found in your possession, even if you did not steal it yourself.

Platinum Investing

Of course, there is an even easier way to capitalize from the rise of the precious metals, and that is to invest in the producers of the metals themselves. While mining companies have fallen by the wayside over the past two years, they have been very diligent in cutting costs and writing-off losses.

What remain are now much leaner. Metals prices need only rise a small amount to deliver a decent return on their shares, currently at multi-year lows. These include:

Anglo American Platinum (OTC: AGPPY)

Platinum Group Metals (NYSE: PLG)

Stillwater Mining Company (NYSE: SWC).

But there are also platinum ETFs to chose from, offering more precise tracking of the metal itself than do the metal’s producers who have operating expenses to contend with. Platinum ETF’s include:

ETFS Physical Platinum Shares (NYSEArca: PPLT)

iPath DJ-UBS Platinum TR Sub-Index ETN (NYSEArca: PGM)

UBS E-TRACS Long Platinum TR ETN (NYSEArca: PTM).

So if you’re the next victim of a catalytic converter thief, don’t get mad, get even. by investing in a legitimate scrap metal company and recouping your losses through investing.

Joseph Cafariello

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