Executive Briefings

Supply Chain Has to Adjust as 'Center of Gravity' for Recycling Gold Moves from West to Asia

A report from The Boston Consulting Group and the World Gold Council analyses the economic drivers of the global gold recycling market and highlights important future industry trends, including a shift in concentration of gold recycling from west to east, increased difficulty in obtaining gold from electronic products as less is used in modern devices, and potential consolidation within the recycling industry across the entire value chain.

The report, The Ups and Downs of Gold Recycling: Understanding Market Drivers and Industry Challenges, shows that between 1995 and 2014, recycled gold accounted for, on average, about a third of total supply. This average belies the dynamic, responsive nature of recycling. An analysis of recycling data from 1982 to 2012 reveals that price fluctuations accounted for around 75 percent of the changes in recycling volumes and that economic shocks can boost recycling by up to 20 percent. The council defines recycled gold as that sold for cash by consumers or other supply chain players. "Total supply" refers to mine production, recycling and net producer hedging.

The report examines the challenges and opportunities facing the gold recycling industry, which has two main components; high-value recycled gold and industrial recycled gold. High-value gold accounts for roughly 90 percent of the total supply of recycled gold, and comprises recycled jewelry, gold bars and coins. Industrial recycled gold makes up the remaining almost 10 percent and consists primarily of gold found in waste electrical and electronic equipment (WEEE). The growing volume in WEEE offers opportunities for industrial materials recycling, although obtaining gold from this material will become ever harder as smaller amounts of gold are used in them.

Furthermore, as Asia's stock of gold keeps growing, the “centre of gravity” for gold recycling will likely shift east. India's and China's gold jewelry consumption rose from 28 percent of the global total in 2004 to 60 percent in 2014 and as a consequence local competition for gold recycling business could heat up in Asia.

Intensified competition and overcapacity in the near and mid-terms represent the main challenges for both the high-value and industrial gold recycling segments. In addition, falls in precious metal prices have squeezed margins along the recycling value chain, spurring consolidation.

"The decline in recycling in 2014 was widespread across both developing and industrial countries, although more severe in the latter,” says Alistair Hewitt, head of market intelligence at the World Gold Council, said. “Looking forward, we expect recycling to remain low in 2015, and possibly decrease further given that a large portion of near-market supply has been flushed out in recent years. Reduced volumes of distress selling may further suppress recycling volumes and many recycling collectors are struggling to source stock. That said, recycling is the most dynamic element of supply and helps balance the gold market; any price increase in 2015 may elicit an increase in gold recycling volumes."

Matthias Tauber, partner and managing director, The Boston Consulting Group, says, "Industry players in the gold recycling market face a complex blend of challenges and opportunities. Chief among the challenges is overcapacity, particularly in waste electrical and electronic equipment recycling which has nearly doubled over the past 10 years. To succeed, companies must rethink their competitive strategies and operating models – including leveraging economies of scale through M&A and strengthening their operational excellence and reputation among customers."

In 2014 gold recycling fell to a seven-year low and is expected to remain low in 2015. This is partly a result of gold prices being lower than they were several years ago, leading to less “distress selling” as a result of greater economic stability, and the depletion of near-market gold recycling materials.

The full report is available from the BCG and Council web sites.

Source: The Boston Consulting Group

The report, The Ups and Downs of Gold Recycling: Understanding Market Drivers and Industry Challenges, shows that between 1995 and 2014, recycled gold accounted for, on average, about a third of total supply. This average belies the dynamic, responsive nature of recycling. An analysis of recycling data from 1982 to 2012 reveals that price fluctuations accounted for around 75 percent of the changes in recycling volumes and that economic shocks can boost recycling by up to 20 percent. The council defines recycled gold as that sold for cash by consumers or other supply chain players. "Total supply" refers to mine production, recycling and net producer hedging.

The report examines the challenges and opportunities facing the gold recycling industry, which has two main components; high-value recycled gold and industrial recycled gold. High-value gold accounts for roughly 90 percent of the total supply of recycled gold, and comprises recycled jewelry, gold bars and coins. Industrial recycled gold makes up the remaining almost 10 percent and consists primarily of gold found in waste electrical and electronic equipment (WEEE). The growing volume in WEEE offers opportunities for industrial materials recycling, although obtaining gold from this material will become ever harder as smaller amounts of gold are used in them.

Furthermore, as Asia's stock of gold keeps growing, the “centre of gravity” for gold recycling will likely shift east. India's and China's gold jewelry consumption rose from 28 percent of the global total in 2004 to 60 percent in 2014 and as a consequence local competition for gold recycling business could heat up in Asia.

Intensified competition and overcapacity in the near and mid-terms represent the main challenges for both the high-value and industrial gold recycling segments. In addition, falls in precious metal prices have squeezed margins along the recycling value chain, spurring consolidation.

"The decline in recycling in 2014 was widespread across both developing and industrial countries, although more severe in the latter,” says Alistair Hewitt, head of market intelligence at the World Gold Council, said. “Looking forward, we expect recycling to remain low in 2015, and possibly decrease further given that a large portion of near-market supply has been flushed out in recent years. Reduced volumes of distress selling may further suppress recycling volumes and many recycling collectors are struggling to source stock. That said, recycling is the most dynamic element of supply and helps balance the gold market; any price increase in 2015 may elicit an increase in gold recycling volumes."

Matthias Tauber, partner and managing director, The Boston Consulting Group, says, "Industry players in the gold recycling market face a complex blend of challenges and opportunities. Chief among the challenges is overcapacity, particularly in waste electrical and electronic equipment recycling which has nearly doubled over the past 10 years. To succeed, companies must rethink their competitive strategies and operating models – including leveraging economies of scale through M&A and strengthening their operational excellence and reputation among customers."

In 2014 gold recycling fell to a seven-year low and is expected to remain low in 2015. This is partly a result of gold prices being lower than they were several years ago, leading to less “distress selling” as a result of greater economic stability, and the depletion of near-market gold recycling materials.

The full report is available from the BCG and Council web sites.

Source: The Boston Consulting Group