The long-anticipated switch to a limited use of platinum in petrol engines is a certainty due to the shortage of palladium, the preferred metal in anti-pollution devices, a report by the World Platinum Investment Council reads.
The negative consequences on the market arising from the spread of the Covid-19 virus, which had its epicentre in Wuhan in China, could be muted if the outbreak is contained “in a matter of months”, the World Platinum Investment Council said.
SA is the world’s largest source of platinum, supplying two-thirds of annual mined output of about 6-million ounces. It makes up the largest portion of the precious metals coming out of SA platinum group metals (PGM) mines.
A sluggish platinum price over the past decade due to oversupply and falling demand for diesel cars after the VW emissions scandal regarding faked data on its diesel engines put SA’s mines under tremendous financial pressure.
Due to increased demand in recent years for palladium and rhodium for use in petrol engine exhaust systems as emissions regulations are tightened and car makers ensure they don’t fall foul of tests, the prices for the two metals have risen exponentially.
The council has appointed Metals Focus, a UK-based analytics firm that employs many senior and respected experts who once worked at GFMS, a precious metals analytics firm taken over by news provider Thomson Reuters.
The current palladium price is unable to stimulate investment in growth as these producers know platinum is a far more likely mechanism to rebalance the market than additional palladium supply
— Metals Focus
The most pressing question in the PGM market is about the substitution of palladium in autocatalysts with platinum, easing the deficit in the palladium market and bringing a fresh source of demand to the platinum market.
Every SA PGM mining CEO has made the same suggestion to carmakers: use platinum in place of some palladium, ease the deficit and lower prices.
Metals Focus said the palladium deficit could rise as high as 1.9-million ounces in 2020.
“The current palladium price is unable to stimulate investment in growth as these producers know platinum is a far more likely mechanism to rebalance the market than additional palladium supply,” Metals Focus said.
SA is the second-largest miner of palladium outside Russia by a narrow margin. The autocatalyst market consumes 9.7-million ounces of palladium a year against 3-million platinum ounces.
Replacing 5% of palladium with platinum in a one-to-one ratio would create demand of more than 450,000 oz of platinum. “This will do little to ameliorate the palladium deficit yet creates a significant demand increase in platinum,” Metals Focus said.
“The high price, sustained demand growth and limited supply growth of palladium now makes material platinum demand growth due to substitution of some palladium in [petrol] cars extremely likely. Details of this substitution remain proprietary and extremely confidential,” Metals Focus said.
“Fortunately, autocatalyst fabricators, including Johnson Matthey, are acknowledging that substitution can be done and is happening,” it said.
Report surplus
Sibanye-Stillwater CEO Neal Froneman said at the end of February the company, as the world’s largest supplier of PGMs, was working closely with another fabricator, Germany’s BASF, on perfecting technologies to allow substitution. The process would happen sooner than the two years most people in the market were anticipating.
According to Metals Focus, the platinum market will report a surplus of 119,000 oz in 2020, with mined supply from SA, Russia, Zimbabwe and elsewhere coming in at 6.04-million ounces.
Recycled metal from old autocatalysts, the antipollution devices in diesel exhausts; industrial applications; and jewellery will surpass 2-million ounces, giving a total supply of 8.12-million ounces.
Demand was expected to be 7.998-million ounces, with the diesel carmakers accounting for 3-million ounces of offtake, jewellery 2-million ounces, industrial users a similar amount and investment 633,000 oz.
The council stressed Metals Focus’s data could not be compared to that of SFA Oxford, which provided input from 2013 to the end of 2019, due to their differing methodologies.
Latest report
SFA noted the platinum market was in a 65,000 oz surplus at the end of 2019, down from a 790,000 oz surplus the year before, with investment demand at 1.19-million ounces, more than offsetting falling demand from carmakers, jewellers and industrial users.
The council’s latest quarterly report draws on two data suppliers and metal analysis companies for its 2019 and 2020 numbers and outlook.
With the departure of Sibanye at the end of 2019 from the council, which was set up and funded by SA platinum mining companies in 2013, a new source of data and insights was appointed.
Sibanye bought analytics firm SFA Oxford to give it insight into the global PGM market and to investigate the battery minerals industry, an area Froneman has spoken of as the next commodity that the gold and PGM mining company would like to enter.
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