Market Developments
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Pedal to the metal
By Michelle Graff
February 02, 2010
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| Refineries represented a jewelry industry bright spot in 2009, as the poor economy and high gold prices had consumers rushing to cash in. Among the beneficiaries was the SO Accurate Group's refinery in New York, shown here. |
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If there has been a sliver of sunshine for the jewelry industry in an otherwise dark year, it has been at the refining end of the business, where operations are still moving at full speed.
As the price of gold soared past $1,000 an ounce this fall and as liquidity-starved Americans continued to turn their old jewelry into cash, there has been one sector of the jewelry manufacturing industry that has not just survived the gloom, but thrived within it: refiners.
In fact, as sales have slumped, refineries have joined liquidation firms and pawnshops as one of the few bustling segments of the jewelry industry.
"If we just had to depend on jewelry sales, things would be gloomy," says Vincent Guadagna, president of United Precious Metals Refining in Alden, N.Y. "But the refining ... it's really made us very profitable. It's just because of the volume and what's out there. There's so much more scrap out there."
Amir Jabin, chief sales officer for Hi-Tech Precious Metals & Refinery in Dallas, was among those executives who have similarly watched business rise as the recession has lingered on.
Precious metals refining has benefited over the past year from an " incredible rise" in the prices of precious metals, led by karat gold, coupled with a weak economy, Jabin says.
Rising unemployment and gold prices that reached historic highs also caused the secondary precious metals market to be flooded both with consumers seeking quick cash and struggling jewelry businesses seeking relief, he says.
Another 2009 trend is what Jabin refers to as "a downpour of small to mid-sized gold-buying businesses," referencing the rise in Cash4Gold-like operations--which urge consumers to mail in their unwanted gold for cash--and even gold buy-back parties, the recession-era equivalent of the Tupperware party, which are in some cases run by jewelers looking to augment their businesses.
It doesn't seem like these economic-driven enterprises are going away. At press time [in December, when this story was first published in National Jeweler], the recession had yet to officially recede, the U.S. unemployment rate had hit 10.2 percent, and gold hovered above $1,100 an ounce on metals pricing Web site Kitco.com.
One hot industry
On a recent Thursday afternoon, things were going full steam at the SO Accurate Group's Refining Services facility in Manhattan.
In one room, unwanted jewelry dissolved in high-temperature vats of chemical solution so that the stones could be extracted while, in another, a worker emptied a large plastic bin of gold manufacturing scrap into an induction melter, where temperatures soared to 2,000 degrees Fahrenheit.
At such extreme temperatures, it takes only 15 minutes for the batch of metal to transform from a solid to a liquid, only to be poured into a bar mold and solidified again into a different form as it cools.
Business at SO Accurate has been busy this year, but not quite as hectic as in 2007 and 2008, says Larry Wilson, company president and co-founder.
"Our business is good [now]," he says. "It was great for two years."
The reason things have slowed down a bit: SO Accurate mainly takes in scrap from manufacturers, which is either unwanted merchandise marked for melting or the remains of the manufacturing process.
With most of the slow-sellers already cleared from manufacturers' shelves and not much demand for new product, Wilson says he's seen the refining company's business drop off a bit. But, he knows exactly where to go to supplement it: pawn brokers and gold buyers.
"We'd like more of that business and we're moving in that direction," he says.
Based on the business SO Accurate does already--it has one customer who brings in $200,000 to $300,000 in gold weekly--Wilson estimates that American consumers right now are scrapping a staggering $50 million in gold per week.
Robert Truhe, general manager of Dillon Gage Group's refinery in Dallas, doesn't think the $50 million estimate is too far afield.
"That seems easily attainable," Truhe says.
At Dillon Gage, the amount of gold submitted for refining is up 20 percent, and the company has been adding staff and asking its current workers to log overtime to keep up with demand.
"A lot of the jewelry stores have figured out that if they want to stay in business, they need to start buying jewelry across the counter instead of just selling it," Truhe says.
Guadagna notes a similar survival streak driving up gold refining at the upstate New York facility he operates near Buffalo.
"People are doing whatever they can to survive," he says. "You see gold's $1,050 [an ounce], you're pretty tempted to get rid of it."
He says the amount of gold that came through United's facility between 2007 and 2009 increased 70 percent, and his workers are logging an average of 15 hours of overtime each week to keep up with demand.
If the production rates aren't enough to show that melting metals is a big business these days, consider this: Both Dillon Gage and United are expanding.
Guadagna says in April, construction started on a 6,000-square-foot addition slated for completion by year's end.
Meanwhile, Dillon Gage is searching for a space double the size of its current facility, though Truhe notes that the addition was prompted more by the need to deal with the increase in silver refining rather than gold refining.
Also making plans to strike while the iron's hot is Richmond, Va.-based Hoover & Strong.
President Torry Hoover says the company is seeing a lot of scrap, as it did in 2008, but without the price volatility present last year.
Data from metals price tracking Web site Kitco.com shows that the price of gold generally ranged between $850 and $950 an ounce for much of 2009, spiking near $1,000 an ounce twice but not actually hitting the $1,000 mark until September.
"This year, we have had stable business," Hoover says. "Jewelers have been sending their scrap and we are up."
In order to take full advantage of submitted scrap, Hoover & Strong added stone removal to its suite of services in 2009, and the refinery now sorts melee and brokers the stones to diamond dealers, who then sell to retailers.
The company plans to expand the service to include larger stones next summer.
"The jewelers are relying much more on buying scrap gold and diamonds and need a place to broker their diamonds," Hoover says.
Perhaps the best evidence of the bright times in refining came in June when Hoover & Strong made a bold mid-recession move and acquired Telford, Pa.-based Keystone Findings Inc., a manufacturer of die-struck and cast settings, solitaire wedding bands and earrings.
"The smart companies are using this downturn in the economy to gain market share," Hoover says."
Silver streak
Silver has been the story at trade shows all year long, with designers at higher and lower price-point ends crafting pieces in silver to meet the public's demand for affordable jewelry.
Guadagna says United has seen about an 18 percent increase in silver refining since the summer.
While its per-ounce price seems piddly compared to gold, the price of silver today--around $17.40 an ounce at press time [in December], according to Kitco.com--is more than twice the $8 per ounce it commanded just five years ago.
"People are scrapping silverware--knives, spoons--not only jewelry," Guadagna says. "If you've got enough silver, you can still get thousands of dollars back."
Sales of silver grain for manufacturing are also up, while demand is down for gold and platinum grain, he says.
"People still consider silver jewelry, and it's obviously a much [lower] price point than gold," Guadagna says. "People can afford silver."
Truhe also notes a rise in silver refining, with antique silver dealers taking advantage of the metal's per-ounce price to bulk up their wallets.
"When they see silver around $18 [an ounce] ... they just start scrapping it," he says.
Wilson notes a similar silver streak at his Manhattan facility.
"These days, there's a lot less gold and a lot more silver and gold," he says. "That's the direction it's going because of the price of the metals and the economy."
At Hoover & Strong, which manufactures Harmony Metals & Gems, a line of jewelry made from recycled metals and ethically sourced diamonds and gemstones, Hoover says he's had a lot more requests for--and a few sales of--sterling silver bridal jewelry.
"Bridal companies that have never even thought about silver are looking at it," he says.
Platinum, palladium sputter
After experiencing an uptick in 2008, palladium, priced around $348 an ounce at press time [in December], grew quiet in 2009.
Mark Danks, sales and marketing manager for platinum and palladium jewelry products at Johnson Matthey's New York offices, says demand for palladium alloy used in manufacturing, particularly the tubing used for men's wedding bands, was strong in the first six months of the year but has dipped since the summer.
Refining of the metal is also down slightly after experiencing a 25 percent increase last year.
Guadagna agrees, saying United's intake of palladium for refining is down after an uptick in 2008. One problem with palladium, cited by both Danks and Guadagna, is a lack of marketing muscle.
"The biggest problem with palladium is little consumer awareness," Danks says.
Gold has the World Gold Council to give it a boost, while platinum has the marketing muscle of the Platinum Guild International behind it.
"For palladium, there's nothing," Danks says.
Guadagna echoed this sentiment.
"Without somebody pushing it and backing it, it basically stalled," he says.
Palladium Alliance International (PAI), the marketing organization sponsored by Montana's Stillwater Mine, has been somewhat "dormant" in the United States for the past year, says Kate Peterson, who serves as a sales and training consultant for PAI. However, she denied claims that that the organization had officially disbanded in this country and is now just operating in China.
"PAI is primarily maintaining a Web-based presence in the U.S. market, with its field consulting team available to handle technical or sales-related questions, while focusing more of their direct efforts on the Asian markets," Peterson says.
Despite the down year for palladium, Danks doesn't think the metal will disappear from the jewelry landscape entirely, with demand increasing at a regular, albeit slow, pace.
"It's not exponential, it's just steady," he says. "It's perhaps a little bit slower than most people would like."
Meanwhile, there was a steep decline in the price of platinum in 2009.
After reaching dizzying heights of nearly $2,300 an ounce in 2008, the highest price the metal hit in 2009 was $1,372, its price at press time [in December] on the precious metals site Kitco.com.
Truhe says he's noticed a slight decrease in the amount of platinum submitted for refining, while Guadagna says at United Precious Metals, the amount of platinum submitted for refining has remained steady while demand for manufacturing grain is down about 10 percent in recent years.
At Johnson Matthey, Danks says both sales of platinum manufacturing products and refining intake started to deflate last November in the immediate wake of the economic crisis.
"That's continued into this year," he says, adding that there have been some signs of life over the past couple of months.
Another chink in the armor for platinum and other precious metals is the rise of what manufacturers call "contemporary metals," such as tungsten carbide, stainless steel and palladium in men's wedding bands. Scott Kay just added another option, also at the lower price-point end of the spectrum: SK Cobalt, a white cobalt alloy.
"Everybody's on a budget these days, and if you're getting married it's no different," Danks says. "Probably the bride will still be looking for a platinum engagement ring or wedding band but if your budget's tight, the groom has many more options."
Editor's Note: This story first appeared in the December 2009 issue of National Jeweler.
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