As Europe ramps up its defence budget to protect economic stability and ease its reliance on the US, the continent’s growing investment in military technology may bode well for SA’s platinum miners.
According to a recent report by the World Platinum Investment Council, platinum group metal (PGM) players are eyeing innovative military applications for their metals as potential avenues for demand growth.
This comes as war wages on in Ukraine and the Middle East, leading Nato countries to agree on June 25 to set a goal of 5% of GDP for annual defence spending by 2035.
Earlier in June, Germany’s finance minister vowed to lift the country’s defence spending to 3.5% of its GDP by 2029, a move which would be funded through a nearly €400bn (R8.25-trillion) borrowing programme.
Goldman Sachs wrote in February that its baseline assumption was that the EU would gradually increase its annual defence spending by about €80bn by 2027, a rise of about 0.5% of its GDP. The bank forecasts a sharp uptick in spending over the next two years, with defence spending in the euro area predicted to rise from 1.8% of GDP in 2024 to 2.4% by 2027.
This stimulus is likely to trickle down to the PGM sector, the World Platinum Investment Council said.
PGMs are already used extensively in the defence and aerospace sectors, including in aircraft engines, lasers, night vision goggles, missile nose cones and military-specific capacitators. But hydrogen fuel cells, which are increasingly being looked at by defence and aerospace manufacturers, are a potential game changer for platinum miners.
These battery alternatives use platinum as an ingredient to convert hydrogen and oxygen into electricity — a process which has attracted global investor interest as it promises to create more efficient and environmentally friendly energy than fossil fuels.
Hydrogen-linked demand for platinum is expected to increase tenfold by 2030, contributing 10% of overall demand for the metal, according to a report by the Hydrogen Council last year.
In the past year, major manufacturers have shown a keen interest in using hydrogen fuel cells in the military, spurring hopes that the growth in military platinum demand will come sooner rather than later.
South Korean carmaker Hyundai’s defence solutions unit announced in October that it had developed the first military tank powered by hydrogen fuel cells. Ukrainian military drone group Skyeton is in the process of developing unmanned aerial vehicles powered by hydrogen fuel cells.
Additionally, the US department of defence is researching ways to generate, store and distribute hydrogen on US navy ships to protect against fuel supply vulnerabilities, which can be heightened in times of war.
In recent months, SA miners have enjoyed a surge in PGM prices thanks to the growing popularity of hybrid electric vehicles, whose catalytic converters use platinum to filter harmful fumes out of engine emissions.
Platinum prices have shot up by nearly 50% this year, more than doubling the values of top miners Sibanye-Stillwater and Northam Platinum. Impala Platinum and former Anglo American subsidiary Valterra have gained about 86% and 53% over this period.
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