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Africa|Automotive|Core Consultants|Efficiency|Mining|Platinum
Africa|Automotive|Core Consultants|Efficiency|Mining|Platinum
africa|automotive|core-consultants|efficiency|mining|platinum

Metal volatility creates supply deficit

LARA SMITH 
In the mining industry, metals have formed somewhat of a safe haven amid the global instability in democracies

LARA SMITH In the mining industry, metals have formed somewhat of a safe haven amid the global instability in democracies

5th February 2021

By: Theresa Bhowan-Rajah

journalist

     

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Amid the global knock-on effects of Covid-19 in every industry, and despite the impending deficit caused by high demand and low supply, international commodities consultancy Core Consultants states that 2021 is the year for metals.

“In the mining industry, metals have formed somewhat of a safe haven, amid the global instability in democracies. This instability is owed to not only developments in the US, but rather divisions across many major factions in several countries,” says Core Consultants MD Lara Smith.

She notes that the price of rhodium has already increased this year, surpassing $20 000/oz. However, the market is expecting a supply deficit of more than

150 000 oz this year, which could increase over the next three to four years.

“While the price of rhodium has been increasing since last year, production has not increased. Moreover, industry has seen a lot of precious metal deposits go offline, unable to produce to capacity, owing to Covid-19. Rhodium prices are traditionally quite volatile, and as a result, a strong rhodium price is not enough to justify the restart of a production.”

She states that, if rhodium mines are not restarted, or even if they are restarted but without any new mines opening, the rhodium deficit will only increase.

Rhodium is significantly important to the electric vehicle (EV) industry, with a large percentage of rhodium demand coming from automakers. This demand will only exacerbate the rhodium deficit going forward.

“New emissions standards necessitate that automakers use rhodium in EVs, resulting in the price of rhodium having increased by 3000% in five years. If nothing changes with regard to supply, these prices could remain at high levels going forward,” notes Smith.

Additionally, the demand for EVs is expected to rise significantly over the next decade. The current market share is about 3% of new-car sales globally; this is expected to rise to 10% by 2025 and to more than 25% by 2030. Smith states that this trend toward EVs will benefit rhodium, palladium and silver producers.

“Considering that the majority of the world’s platinum-group metals (PGMs) are found in South Africa and Russia, there could be further deficits in the future, with increased upward pricing pressure on these metals if there are no efficiency gains and ramp-ups in South Africa,” says Smith.

She adds that palladium is also highly dependent on the automotive industry. This means that, despite a peak in February 2020 and a 41% decline since, a recovery in the price is expected.

Further, vehicle sales in the US and in Europe are expected to normalise by July or August of this year as economies reopen in earnest and stimulus packages are implemented. However, PGMs supply might fall short as a direct consequence of Covid-19 and the roll-out of the vaccine in South Africa.

“South Africa is expected to continue to struggle to administer the vaccine for the next year, which could place continued supply constraints on PGMs production. We might find the rest of the world increasing demand, with South Africa unable to provide consistency in terms of supply, unless the vaccine becomes available sooner.

“We can expect to continue to see Covid-19 flare-ups, followed by lockdown and other restrictions and, consequently, reduced supply. I expect that palladium prices will continue to range from $1 900/oz to $2 100/oz for this year,” concludes Smith.

Edited by Nadine James
Features Deputy Editor

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