Many geographic regions active in the platinum group metals (PGMs) sector are in the early stages of recovery, following the economic impact of the Covid-19 pandemic, with platinum, palladium and rhodium expected to remain in deficit this year.
However, a great deal of uncertainty remains, as there is limited visibility beyond the next few months, says Anglo American sales and market insights PGMs head David Jollie.
“The Covid-19 pandemic and unprecedented government responses worldwide, including widespread lockdowns, had a significant effect on PGMs supply and demand in the first six months of the year.”
Jollie says local PGMs operations will face significant headwinds for the remainder of the year, with production expected to be impacted on by several variables, including possible power outages by State-owned power utility Eskom.
A sharp decline in supply from local operations is forecast for this year, compared with 2019, owing to the loss of ounces during the hard lockdown from March 26 to April 30, when all nonsurface or mechanised mines in the country were closed, as well as the subsequent slow ramp-up and the ongoing enforcement of physical distancing.
Further, a significant decline in global platinum supply is also forecast, as South Africa accounts for 70% of the world’s mined platinum, while Zimbabwe, which supplied 455 000 oz in 2019, has also been impeded by a national shutdown and the subsequent slow ramp-up of operations.
“Secondary supply is also likely to be lower, owing to considerably fewer vehicles being scrapped,” states Jollie.
Recycling contributes one-quarter, or about two-million ounces, of the world’s yearly platinum supply, according to a report published by the World Platinum Investment Council in November last year.
Meanwhile, mined supply of palladium will be less affected than that of platinum or rhodium, as about 60% of the metal is supplied by Russia or North America, which have been much less affected than South Africa by Covid-19 shutdowns so far, notes Jollie.
“We continue to see palladium in a modest deficit this year. In future, market balances will depend on the recovery of vehicle sales globally, but current expectations see palladium returning to a sizeable deficit in 2021.”
Rhodium supply is also expected to remain in deficit this year.
Digging into Demand
PGMs demand will be heavily affected by the slump in global car and commercial vehicle sales and production this year, as well as the weaker sales of platinum jewellery, and more variable, but mostly softer, industrial demand, says Jollie.
The automotive industry represents the largest PGMs customer, using palladium and rhodium in the catalytic converters of petrol engines, and platinum in exhaust after-treatment for diesel vehicles.
Global light-duty-vehicle sales and production are forecast by research group LMC Automotive to fall by around 20% year-on-year in 2020, while heavy-duty-vehicle sales are expected to decline by 22%, compared with 2019, with production down 25%.
Platinum did not share in the price gains of other PGMs in the first half of 2020, despite a small market deficit, as sentiment was weak even before the pandemic, owing to struggling jewellery sales and a subdued diesel automotive demand outlook.
“The platinum price reached a trough in March as the extent of Covid-19’s impact on demand became apparent. However, the lower platinum price in local currencies resulted in strong retail investor buying, and the price steadied as the pandemic started to have a significant impact on supply,” says Jollie.
While palladium reached an all-time nominal and real-price high of $2 795/oz on February 27, the spread of Covid-19 caused a significant pullback in prices, and a much smaller deficit is forecast for 2020 than previously expected.
“The global light-vehicle market will shrink considerably this year and, even though palladium loadings per vehicle will continue to rise, owing to stricter emissions standards, automotive palladium demand is likely to decline significantly,” states Jollie.
Meanwhile, the rhodium price continued to strengthen to a peak of about $14 000/oz in March this year, an all-time nominal high for the metal, on the back of strong automotive demand and a market deficit.
The effects of Covid-19 led to a sharp pullback, with rhodium closing at $8 000/oz on June 30, although this was still higher than the $3 350/oz at the close of the first half of 2019.
Rhodium has remained well supported despite the slump in automotive demand, owing to the even larger impact the pandemic is having on the supply side.
Jollie says prices for the minor PGMs have continued to strengthen over the past year, with iridium ending the first half of this year at an all-time high in nominal price terms of $1 645/oz.
The ruthenium price ended the same period at $270/oz, matching the record level it attained in 2019.
“Demand for minor PGMs should remain robust over the medium term, particularly from the electrical industry. Covid-19-related economic disruption will take its toll in the short term, though this will be relatively limited, owing to iridium and ruthenium’s diversified and industrial-focused spread of applications,” explains Jollie.
In the longer-term, Anglo American Platinum expects PGMs supply and demand to recover and, overall, experience relatively little change in its markets owing to Covid-19, with enduring demand across platinum, palladium and rhodium, he concludes.