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Achieving Price Stability for Precious Metal Catalytic Converters

August 10th, 2023

Precious metals such as platinum and palladium are integral components in the majority of catalytic converters used in wood stoves and commercial ovens. These metals, while effective in their catalytic roles, come with a hefty price tag. Platinum currently commands approximately Euro 26 per gram, with palladium surpassing that at about Euro 36 per gram. This article explores the challenges posed by the fluctuating prices of these precious metals and offers practical solutions for manufacturers in the cooking and heating appliance industry.

The Price Predicament

For manufacturers of wood stoves and ovens, the volatility of precious metal prices presents a significant hurdle. Rapid fluctuations in costs make it difficult to control production expenses. This uncertainty can directly impact the pricing and profitability of their products.

Stockpiling Solutions

One obvious solution to mitigate price volatility is to stockpile catalytic converters that incorporate precious metals. However, this strategy has its drawbacks. Stockpiling ties up valuable working capital and carries the risk of stock becoming obsolete due to design changes or unexpected shifts in market demand.

A Flexible Alternative

Alternatively, manufacturers can consider purchasing the precious metals themselves and maintaining a stock of these materials. This approach is more cost-effective than stockpiling entire catalytic converters and offers the ability to re-allocate materials between different products. However, it introduces security concerns, as precious metals are attractive targets for theft.

Hedging Options

Hedging, or securing the price of precious metals through contracts, is a possibility. However, traditional precious metal contracts typically involve large quantities and lack flexibility. They are better suited for major users like automotive manufacturers rather than the wood stove and oven industry.

A Strategic Solution

A more practical approach for companies purchasing moderate quantities of precious metals (up to approximately 50kg per year) is to open a precious metals account. This functions similarly to a standard bank account but uses grams of precious metal as the currency unit.

How It Works

  • Manufacturers with precious metals accounts receive quotes from catalytic converter suppliers with two components: the weight of precious metals in grams and the rest of the product priced in a standard currency.
  • Customers deposit funds into their precious metals account to cover future requirements, effectively fixing the price of the precious metals.
  • When an invoice is due, customers can easily transfer the required amount of precious metals electronically from their account to the supplier.

Security and Financial Considerations

The risk of theft associated with a precious metals account is on par with that of conventional bank accounts. The primary financial risk is linked to potential price decreases in precious metals, which may necessitate revaluation of account balances.

Opening a precious metals account provides an effective strategy for medium-sized users of precious metals in the wood stove and oven industry. By stabilising production costs and offering flexibility in purchasing, it allows manufacturers to navigate the challenges posed by fluctuating precious metal prices.