Across the US, states are ramping up efforts to crack down on catalytic converter theft, which has risen over 400% since 2019 according to State Farm’s claims data. Catalytic converters, part of a car's exhaust system, are stolen because they contain high amounts of valuable materials, namely rhodium, platinum, palladium, and copper. And they’re becoming more valuable with the rise of hybrid vehicles. A stolen standard catalytic converter is worth anywhere from USD 25 to USD 300, but a catalytic converter from a hybrid vehicle can fetch up to USD 1,400, according to Christopher McDonold of the Maryland Vehicle Theft Prevention Council.
When commodity prices are high, criminals look to cash in – but they need not be the only ones. The Chief Investment Office recently upgraded commodities to overweight, and we raised our copper estimate to USD 10,250/mt by year-end. For long-term investors, we see a significant opportunity for companies that can enable circularity, or use it to their advantage as resource scarcities become more acute.
Stolen catalytic converters represent the inherent value in scrap materials, when collected legally and with permission, of course. An increasing number of early stage ventures are tapping into the opportunity to turn trash to cash, with entire business models focused on new methods for recycling lithium-ion batteries and consumer electronics. And for good reason. The world’s largest auto manufacturers have touted ambitious plans to shift to electric vehicles, and in order to do so, they’re going to need a lot more mined materials. According to the International Energy Agency (IEA), a typical electric car requires about six times the mineral inputs of a conventional car, and an onshore wind plant requires nine times more mineral resources than a gas fired plant. As hybrid and electric vehicles become more commonplace, circularity becomes more attractive. On the bright side, fully electric vehicles won’t have their catalytic converters stolen because they don’t have one, and as the earliest EV and hybrid models begin to reach the end of their first life cycle, there will be more scrap for the taking.
The entire global energy transition is reliant on mined materials, and significant amounts of plastic and textile waste further amplify the need for solutions. Without more efficient utilization of materials, the world is likely to come up short on emission reduction goals, but fortunately, traction is building for a more circular economy. Regulations are becoming increasingly specific to address waste volumes, "thrifting" doesn't seem to have the same stigma with consumers as in the past, and new innovative technologies offer more compelling and economical solutions. While public market opportunities exist, many advanced recycling and other innovative circular initiatives are in the early stages. For investors with adequate risk tolerance and the ability to withstand a lockup period, private markets offer a way to access these opportunities. We provide a more in depth view of circularity and the related opportunity set in our full report, "Circular Economy."
Learn more in the podcast, Lessons from the shadow economy.
Main contributor: Michelle Laliberte
Content is a product of the Chief Investment Office (CIO).
Original report - Lessons from the shadow economy catalytic converters & the value of scrap, 1 February 2023.