By Zimele Mbanjwa
Platinum group metals (PGMs) have been under significant price pressure over the last two to three years. This has seen miners slowing down operations or outright restructuring due to margin pressure and the commensurate impact on cash flows. Some mining sites have been put into care and maintenance (like Two Rivers Merensky by African Rainbow Minerals), Sibanye-Stillwater closed the Marikana 4B shaft, and Impala pulled back on the ramp-up of Styldrift mine, to name a few cases. Other measures that have been taken by miners include staff reductions and pull backs in capital expenditure initiatives. The current World Platinum Investment Council (WPIC) supply projections include a broad reduction in South African production from 2025 to 2028 of ~2% compounded annually.
In this article we explore the evolution of the PGM market over the years as well as the drivers of price dynamics. We look at what could be a potential growth trigger, and how meaningful it will be? While a pull back in production due to depressed prices may be supportive of some upside, supply-side support may be limited by the lack of demand growth as the world moves further towards electrification and continues along a path of clean energy transition.
A brief overview of the PGM market
There are six platinum group metals, namely platinum, palladium, rhodium, iridium, ruthenium and osmium. These metals have similar chemical and physical properties and often occur in the same mineral deposits.
Where do they come from?
PGMs are mainly found in three geographic regions, namely Southern Africa, which accounts for around 80% of primary global platinum supply and nearly 40% of palladium supply, followed by Russia who also supplies a similar amount of palladium, and then North America, which mainly supplies the balance of world's palladium demand. Rhodium, iridium and ruthenium are largely the by-products of platinum mining; hence they are rarer. In South Africa, platinum accounts for about 60% of PGM ounces mined, palladiums accounts for ~30% and rhodium accounts for ~10%.
Only ~75% of annual PGM demand is typically met through primary supply (i.e. mined supply), with the balance coming from recycling (secondary supply). Indeed, the secondary market is an important and robust one. However, depending on the type of recycling, it does not always affect greater market supply.
What are they used for?
Usage of PGMs is primarily industrial; however, there are various other applications that exist. A combination of multiple comparatively advantageous properties makes PGMs attractive in industrial application. These include high thermal stability, strong resistance to oxidation and corrosion, as well as the ability to be used as catalysts in a multitude of chemical reactions. However, they are also held, in some markets, for investment purposes - particularly platinum.
From boom to bust
The PGM market has gone through its fair share of boom-and-bust cycles, with the most recent boom being between 2017 and 2021, and the most recent bust being from 2021 to now. Market cycles are driven mostly by supply-demand imbalances; however, it is the underlying drivers thereof that that tell the real story. As highlighted in the figure above, for PGMs, its automotive use as catalysts in emissions control systems of internal combustion engine (ICE) vehicles accounts for the biggest demand driver.
Diesel and petrol-fuelled vehicle exhaust systems use differing quantities of platinum, palladium, and rhodium for required PGM-based catalysts emissions control systems.
The boom
Emissions regulations are continuously evolving as the world looks to more sustainable and environmentally friendly vehicle energy sources. This plays a huge role not only on PGM demand, but also on the type of PGM that automakers utilise for emissions control in ICE vehicles. Ultimately, regulatory changes have been a major source of supply-demand dynamics of PGMs over the years.
According to the International Council on Clean Transportation, light-duty cars and trucks account for around 40% of transportation emissions. The council states that decarbonising the transportation sector will require that 66% to 90% of passenger vehicles be net zero-emission vehicles by 2050. This is, of course, a major undertaking that requires significant actions by regulators and automakers alike.
The most recent PGM demand boom, and subsequent price appreciation between 2017 and early 2021, was the result of tightening emissions legislation, particularly in Europe and China, which pushed for higher PGM loadings (the amount of metal used in emissions control system) in both light and heavy-duty automotives. Over the last 15 years, regulatory authorities have constantly tightened vehicle emission regulations.
The PGM boom in 2017 coincided with the full implementation of the China 5/V standards. The China 5/V standards were initially introduced and partially adopted regionally in China in 2013, before being required nationwide across all vehicle types in 2017. This standard for new vehicles was more stringent on emissions control than the China 4/V and the European 5/V standards at the time. The more recent China 6/VI, which has had early adopters since 2019, is even more stringent regarding restrictions on emissions.
According to WPIC research, since the advent China VI, Chinese palladium loadings have increased over 40%, while rhodium loadings increased by over 50%. Evidently, regulation changes drove a surge in demand for palladium and rhodium, which ultimately lead to the two materials trading at exorbitant premiums between 2017 and 2021. Platinum, because of its use mostly in diesel-powered vehicles which were slowly losing popularity since the Volkswagen scandal of 2015, saw a decline in loadings and lagged the exponential demand and price boom of palladium and rhodium during that period. As evident on the graph above, the platinum price has been rangebound since the aforementioned scandal of 2015, with the price fluctuating around the $1 000/ounce mark over the previous decade. Meanwhile, palladium and rhodium, which prior to 2017 both traded below platinum, saw strong demand growth in a short space of time. Another reason for platinum's stability over the previous decade can be attributed to its variety in use, with 44% being automotive, 18% being jewellery and the rest being glassmaking, dental & biomedical and other industrial usages.
The bust
With every boom, a bust almost inevitably follows. Palladium peaked at nearly $2 900/ounce, while rhodium peaked at near $30 000/ounce in early 2021. What induced the bursting of the PGM bubble from 2021 to present is a confluence of various factors. However, the major triggers were the abnormally high prices of palladium and rhodium, and the rise in demand of electric vehicles (EVs) during the recovery period post Covid-19. According to SFA (Oxford), ICE vehicle demand, which primarily use PGMs auto catalyst, reached its peak pre-Covid-19.
Indeed, demand for ICE vehicles has been on the decline since the peak of 2017, with market share being slowly gained by hybrid and battery EVs. Global ambitions to reach net-zero emissions by 2050 suggest that demand for ICE vehicles will continue to decline at the expense of the more sustainable electric counterparts that are becoming more efficient and affordable over time. This is despite the notable recent slowdown in the uptake of EVs in some markets which has led to more automakers cutting back on electrification targets. Per Bloomberg NEF, electric car sales will grow at a rate of 21% per annum over the next four years, a stark contrast to the 61% per annum averaged between 2020 and 2021, but still largely ahead of the tepid expectations of their ICE counterparts.
The graph on the right of the above illustration shows that as the regulatory environment tightened, particularly with the full adoption of Chinese emissions regulations in 2017, palladium was in a significant deficit, and all three PGMs were in deficit in 2019 and 2020, which was significantly supportive of price increases. However, in 2021, as primary supply, as well as secondary supply, ramped up to meet demand, the market began to be significantly pressured. Additionally, the need to plug in the palladium deficit gap as well as the extremely high prices of palladium, led to a resurgence in demand for platinum as a substitute in recent times. Generally constrained economic conditions over the past few years have also impacted demand for automotives overall.
The outlook
The platinum markets have been in deficit in the last two years due to some pull back in supply from primary producers. More recently, South African mining companies in the PGM space have had to restructure operations in response to the continuous falling prices which have strained margins and drained cash flows. As noted above, the steps taken by various producers include closures of certain mining sites, deferrals of expansionary projects, and the slowing down of production. In fact, as reported in the WPIC Research's most recent quarterly report, PGM production guidance was reduced by an average of 5% per annum between 2025 and 2028.
Despite the expectation of continued market share gains for EV vehicles, there is still scope for PGM demand to be supported by growth in hybrid automotive production and sales (where PGM loadings are higher), continued stricter regulations on emissions for ICE vehicles (that will also require increased PGM loadings) even as volumes may fade, and the growing use of platinum in hydrogen fuel cells (FCEV). In the latest WPIC research report, it is forecast that automotive demand for PGMs will decline by only 1% per annum between 2023 to 2028, much less than what was previously forecast. Between 2025 and 2028, platinum market deficits are expected to remain around 7%.
Parting comment
The deficits seen in 2023 and 2024 have not translated to meaningful growth in PGM prices. This is primarily because actual demand has been soft as wider economic pressure has dampened industrial demand, particularly in automotives, and forecast of said deficits have progressively been revised lower. Rapid demand from the hydrogen economy also appears less certain and less robust than initially expected.
Price supportive factors remain, including supply adjustments and perhaps cyclical support in the automotive space; however, how much support will be offered long term is hard to predict. Of the PGMs, platinum appears to have a brighter outlook compared to palladium and rhodium that still trades at premiums to their long-term averages.
Among the PGM miners, our preferences are for Amplats and Northam given their strong balance sheets and histories of decent capital allocation. The more marginal producers may deliver comparatively strong gains in the event of a sharp appreciation in PGM prices, but of course in this case, the risk of capital loss will be more prevalent.
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