General Motors has recently come under criticism for petitioning the bankruptcy court to break its contract with Stillwater Mining Company, located in Stillwater, Montana.
The USA does not produce, nor does it have, sufficient resources of any of the platinum group metals (PGMs) to meet the demands of the American domestic OEM automotive industry for catalytic converters. These catalytic converters must, by law, be fitted on any vehicle or device utilizing an internal combustion engine fueled by hydrocarbons, if the emissions from the operation of that device exceed a legally defined minimum.
The only domestic producer of the metals palladium and rhodium is the Stillwater Mining Company, owned by the Russian nickel and palladium producing giant, Norilsk, the world’s largest producer of palladium. Stillwater’s contribution to the total production of palladium by Norilsk is insignificant. However, because of the connection with Norilsk, Stillwater can uniquely, for an American company, offer any American customer all of its needs of palladium no matter what the quantity required.
Thus Stillwater was able to extract from General Motors a “floor price.” This means that in return for Stillwater guaranteeing the delivery of any quantity, General Motors agrees always to pay a minimum floor price even if the market price is below the floor price.
Even 9 months ago when this agreement was entered into it looked like a win-win.
Today with the unprecedented fall of PGM prices, the largest percentage drop in the period of time considered in history, the floor price has backfired on GM. The company would have to pay far above market price for its critical PGMs, metal without which it cannot legally sell a car.
But even though the bankruptcy of GM lets it back out of an otherwise unbreakable deal, Stillwater’s complaint that GM shouldn’t be allowed to do so, because it means that taxpayer funds will go to a foreign supplier, is hypocritical.
Stillwater’s domestic production of palladium and rhodium could never have satisfied GM’s needs if 2008 sales had turned out as predicted, and most of GM’s supply of rhodium, for example, would have come from AngloAmerican’s operations in Southern Africa along with most of GM’s platinum needs. Although Stillwater could have supplied all of GM’s needs for palladium, it could only have done so by importing palladium from its Russian parent.
It would have been Stillwater that was physically outsourcing palladium, not GM, although GM would have had to be completely aware of this from the beginning. It was, after all, why buying palladium from Stillwater was an attractive proposition; it eliminated any risk of interruption of supply of a critical raw material.
Globalization has brought us to the point where an American wholly-owned subsidiary of a Russian company, is saying that it is unfair to allow an American company to break a contract with it, because the result will be that the American company must buy its supplies from a Canadian or African supplier, both of which, in turn, are owned and operated by either a British or British-Australian owned and operated company (i.e. AngloAmerican, Rio Tinto, or BHP Biliton)
Only one thing is certain. The American taxpayer loses in every case.
If politicians simply required that all OEM automotive scrap containing recoverable PGMs be processed in the USA, and the metal values obtained be sold only to American OEM end users, then the only PGMs that would need to be bought would soon be small enough to be supplied from Stillwater’s domestic production in the case of palladium and rhodium, and possibly from Canadian domestic production in the case of platinum.
Why this isn’t done is a political mystery to me. Perhaps it is just ignorance on the part of those who should know better.