Platinum price to rise as green hydrogen emerges as a new demand segment

14th April 2021 By: Simone Liedtke - Writer

Platinum price to rise as green hydrogen emerges as a new demand segment

Dr David Davis

The rarity of platinum, combined with a decline in supply and overwhelming demand, is a formula for a build-up of a “perfect storm”, says independent precious metals consultant Dr David Davis, who says that this will lead to significant upward pressure on the price of platinum, to which investors have already begun to react.

Given that platinum plays a critical role in the reduction of global warming and its essential role in diverse industrial and medical applications, global mine supply of the precious metal has grown at a compound annual growth rate (CAGR) of about 1.7% between 1990 and 2020.

In 2019, global mine supply was about 6.1-million ounces, according to research done by science and chemicals company Johnson Matthey (JM). Mine supply is, however, not without risk, as it depends heavily on the South African platinum group metals (PGMs) industry, which supplies about 72% of global platinum.

Global mine supply between 2006 and 2019 declined by a CAGR of 1%, while South African platinum supply declined by a CAGR of 1.4% mainly owing to the historical evolution of the mining mix ratio of the PGM reefs in South Africa.

In a presentation authored by Davis, he notes that the PGMs industry has also been “starved” of expansion and ore reserve replacement capital for a number of years, though miners are now beginning to invest in reserve replacement.

While this quantum of investment is unlikely to stave off the decline in platinum supply, Davis notes that growth in platinum recycling from 2011 to 2020 has also remained relatively flat at an average of 1.2-million ounces.

“The quantum of platinum autocatalysts recovered by recycling is not expected to grow [up to] 2025 as platinum loadings are historically lower in light vehicles that are about to be scrapped, given the average age of light-duty vehicles being around 12 years.”

In comparison, Davis says the quantum of palladium autocatalysts recovered by recycling is expected to climb to over four-million ounces by 2025 from about two-million ounces at present.

This observation is important in that Davis says platinum secondary recycling supply will not likely support the expected decline in primary mine supply, thereby tightening platinum supply in a climate of ever-increasing demand.

The global demand for platinum hinges on its combination of physical and chemical properties, with the precious metal’s use divided across the industrial, jewellery, autocatalyst and investment demand segments.

Taking this into account, Davis says a fifth new segment is beginning to evolve in that the hydrogen fuel cell and green technology segment will drive platinum demand significantly higher.

In this regard, Davis says that platinum “will play a critical role in the reduction of global warming”.

“In my view, the advent of fuel cell technology has changed this historical description. There are now two types of proton exchange membrane (PEM) hydrogen fuel cells, which will ultimately increase platinum demand,” he elaborates.

He explains that the first application surrounds the PEM fuel cell drivetrains of electric vehicles (EVs), particularly the drivetrains of heavy-duty vehicles – all of which meet the zero-emissions standard.

The second type of hydrogen fuel cells are called PEM electrolysers, which are used in the production of green hydrogen from solar, wind and hydropower.

Demand in 2019 amounted to about 8.4-million ounces, of which autocatalyst, jewellery, industrial, investment and other represented 34%, 24%, 28%, 13% and 7% of total demand, respectively.

Growth in the “other” segment is largely driven by the ever-tightening emissions legislation and the drive to meet zero-emission standards, which, in turn, drives the increasing use of platinum in the fuel cell sector, in both stationary devices and across parts of the transport industry, particularly in the application of fuel cell technology in the drivetrains of heavy-duty trucks.

“The ever-tightening emissions standards have also resulted in additional technologies which have been developed to aid in the efficient control of vehicle emission systems. These include platinum contained in spark plugs and the use of specialised sensors,” Davis comments.

Specifically, the hydrogen fuel cell and green technology segment, which will drive platinum demand significantly, will play a critical role in the reduction of global warming in that growth in the platinum demand segment listed as “other” has been mainly attributed to hydrogen fuel cell and green technology.

According to Davis, this sector is now finally being driven at pace by ever-tightening emissions legislation and the drive to meet zero-emission standards, which in turn drive the increasing use of platinum in the PEM fuel cell sector, in both stationary devices and across parts of the transportation industry, particularly in the application of PEM fuel cell technology in the drivetrains of heavy-duty trucks.

A road map for reducing the European Union’s (EU’s) carbon emissions through a hydrogen ecosystem was among the initiatives under the European Green Deal. The EU released its Hydrogen Strategy in July 2020.

In this regard, a strategic objective to install at least 40 GW of hydrogen electrolysers by 2030 with yearly production of up to ten-million tonnes of ‘green’ hydrogen across the region was agreed upon.

PEM electrolysers are currently seen as the most cost-efficient way to produce green hydrogen from renewable power as they are able to withstand the intermittency of renewable generation.

The World Platinum Investment Council (WPIC) indicates that the generation of green hydrogen capacity targets in the EU and China would require, cumulatively, between 300 000 oz and 600 000 oz of additional platinum by 2030.

The additional platinum demand only considers the EU and China and Davis questions what additional platinum demand will be required to produce green hydrogen in Japan and the US.

In his presentation, he explains that these figures may therefore be considered as conservative, and as providing only a sense of the quantum of the possible platinum required to drive zero-emissions by 2050.