The PGM basket price dropped by 30% in 2023 due to oversupply and a global economic slowdown. However, the future of PGMs is not bleak, as they have a key role to play in the energy transition and are essential for new applications in various sectors.
The uncertain state of the market for electric vehicles (EVs) has complicated the investment case for PGMs, which are used in catalytic converters fitted to internal combustion engine vehicles. This lack of clarity has clouded the outlook for PGMs, which in turn has depressed the basket price – the combined price of a selection of PGMs, typically platinum, palladium and rhodium, and a key indicator of the health and direction of the PGM market.
AUTHOR:
Arnold van Graan, Nedbank Corporate and Investment Banking
South Africa is the world’s largest platinum producer and one of the largest producers of other PGMs, which make a significant contribution to the economy and the country’s foreign exchange earnings. The financial health of the sector therefore has broader implications, not just for PGM prices, but also for the country and the fiscal position.
PGMs play an integral role in fuel cell and hydrogen technologies and the energy transition. Platinum serves as a catalyst in fuel cells, facilitating the electrochemical reactions that convert hydrogen and oxygen into electricity, with water as the only by-product.
However, the growth and adoption of technologies such as electrolysers for hydrogen production are progressing slower than anticipated, and significant PGM demand from this energy transition market is not expected for several years.
PGMs also have many potential applications in the decarbonisation of the energy transition and chemical industries as well as production of sustainable aviation fuel. They could also play a vital role in the health, electronics, pharmaceutical manufacturing, and other sectors thanks to their stability, corrosion resistance, high melting points and catalytic activity.
Research and development efforts and collaborations between leading players across several economic sectors now focus on new uses for PGMs, their indispensable role in achieving global energy transition goals, and their recyclability.
New uses are promising for creating substantial demand, and these alternatives – driven by innovation and investment – will eventually make up for any decrease in automotive demand, potentially leading to stability or growth in the PGMs market.
However, many of these alternative-use applications are still in development, with the autocatalyst sector expected to remain the dominant source of demand for some time, though at reduced levels as EVs gain market share.
The pace of EV growth remains uncertain though. Supply constraints for lithium and other key minerals used in the manufacture of EV batteries could hamper EV growth. Recently, sales of EVs have slumped as consumers weigh up economic considerations and range constraints associated with EVs. Subsidies and tax breaks remain a key catalyst for EV uptake, and with many of these incentives waning, consumers have shunned EVs.
The PGM sector is now clearly in a state of flux, which could lead to metal price volatility. However, for a reliable supply of PGM production for future needs, the basket price needs to be at a sustainable level, and it is not in our view. We therefore expect a supply-side response and a shift in market dynamics over the coming year to normalise some of the supply-demand imbalances.
The PGM sector therefore faces an uncertain near-term outlook. This uncertainty makes it imperative for investors to identify quality assets at the bottom end of the cost curve that will be in a better position to withstand the down cycle.
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