This article features extracts from the Mega PGM Demand Trends Through Different Lenses session at the 2023 LBMA/LPPM Global Precious Metals Conference.
The panel comprised Dr Bernhard Fuchs (Senior VP Metals, Umicore), Emma Townshend (Executive Corporate Affairs, Implats), and Margery Ryan (Industrial PGM Strategy & Advocacy Manager, Johnson Matthey).
Nicky Shiels (Head of Metals Strategy, MKS PAMP SA) moderated the session, which explored the outlook for Platinum Group Metals (PGM) and the various demand trends associated with them.
Nicky Shiels (NS): If approximately 60% of South African supply is underwater at current PGM prices, what is the threat of potential supply cuts within the first 6 to 12 months if prices continue at these levels?
Emma Townshend (ET): I think I share your view on the current level of profitability. I think it’s nuanced. We chose to invest in our lowest cost mines. We have mines that are cash-generative at a cash level. But if we continue to spend at the planned rate, are we going to burn cash? I think the following must be considered: what has the source of your cash been? What is the outlook for the asset? Have these assets’ lives been extended by record pricing? Are they your tier one, low cost, longer life assets? I also think that there have been huge shifts in capital allocations in the industry.
The panel left to right: Nicky Shiels, Dr Bernhard Fuchs, Margery Ryan and Emma Townshend.
NS: How do you assess the risks coming from South Africa going into an energy transition where there are known supply gaps but there are potentially short term supply cuts coming?
Dr Bernhard Fuchs (BF): I think the market is always looking very short term. I don’t think that all these threats on the supply side have any impact on the price, as long as they are not really visible, and as long as they are not noticed by the fundamentals of supply and demand. So, as someone not from South Africa, I think we all are pretty complacent about Eskom, the largest producer of electricity in Africa. For the nine years I have been in the industry, it seems the mines have managed very well – and there is a lot of confidence that the mines will continue to manage despite power supply issues.
NS: There was the expectation that this year may see a recovery in recycling, but European and US numbers are down drastically. What needs to happen in order for the industry to see a pickup in those volumes?
BF: I think the technology and the ways of collecting are clearly there. But what we’ve all underestimated is that the life was extended by the consumers, for all kinds of reasons. First, the reason was a chip shortage, then later, it was probably the affordability of a new car. Cars are driving longer on the street and, as long as they’re on the street – in most countries, at least – people don’t take out the catalyst before the car is scrapped. So, from this, we see a delay of catalysts in the cars that come back. Plus, a lower price makes it less attractive, or if the prices go up metals will join it, and of course this immediately impacts it in the short term. But in the long term, metals fortunately don’t evaporate from the car.
NS: What are the new applications for palladium demand?
Margery Ryan (MR): I think palladium is the thinking person’s nickel. There’s obviously a huge market for nickel process catalysts out there, and there’s definitely scope for palladium to start edging into that space going forward. You don’t need to take a lot of that market to create a large palladium demand, so I think that’s one to watch. Processes that have traditionally been base metal based may not be in future, and we are at the early stages of figuring some of that out.
I think palladium is the thinking person’s nickel
BF: I’m afraid that I’m a little bit more pessimistic. I think that the usage of palladium in automotive catalysts is so dramatically high that any decline will be very hard to be compensated by alternative technologies. We certainly need it here and there – it’s a nice chemical catalyst for some applications and electronics – but I don’t see it. I’m much more optimistic about rhodium because it’s such a fantastic catalyst and has unique properties. There will be all kinds of applications which need it.
MR: I think I agree. You’re not going to get a single big market to come along and replace catalytic converters. I think we’re going to be looking at a much more complex
demand environment. You want a lot of different eggs in this basket if you’re talking and thinking in terms of market development.
NS: The hydrogen economy is still less than 100,000 ounces this year, just one-fifteenth of the jewellery demand. When will we really start to see the demand side of the hydrogen economy pick up?
BF: We have been doing R&D for 30 years. Now we have an application, which is hopefully very cost efficient, but it’s now a chicken and egg issue of hydrogen supply and then the use cases. As oil market applications, in this case, it’s really a matter of scaling up. Now, we are only at an ascent level; the real scaling will only happen after
2030.
MR: I think we need to understand that regulators haven’t created a level playing field for hydrogen fuels.
We’re still way off from a level playing field and regulatory oxygen has been sucked up by Battery Electric Vehicles (BEVs).
I feel that there’s going to come a point at which logic will prevail, and we’re going to have to see more regulatory support for hydrogen and fuel cells than we’ve seen to date. Now, if that happens overnight and an understanding is reached that these technologies are needed alongside BEVs, and if you get the appropriate regulatory support, you could see demand taking off.
So, it depends – on what the regulators do here, on supply and demand balances for battery metals, and on the extent to which regulators might then look at alternatives. I don’t think we know the answers to these questions yet.
NS: Let’s begin the speed round. What will be the dominant driver of PGM pricing going forward?
BF: Before Emma’s presentation, my answer was demand. After Emma’s presentation, my answer is supply.
MR: Policymaking. They could totally transform things overnight.
ET: Unfortunately, I would also say policy, but I think for the next 12 months it’s the Fed. It’s very hard explaining macroeconomics and interest rate decisions, but I do feel incredibly strongly about how monetary policy has negatively impacted price. I think these are special metals, demand evolved, and now it’s varied. Sometimes that variation in amount is tricky, but it’s incredibly compelling.
NS: What PGM is most underappreciated from a technical, application point of view?
BF: Rhodium.
MR: Palladium.
ET: Palladium. We talk about market development, and we absolutely see a scenario where we have very low prices, but sometimes you need low prices to get people to use the metal. It’s very hard to stimulate market demand when you’ve got prices at multi decade highs, which is where we still are.
NS: Will China be a larger, the same, or smaller consumer of PGMs in five years’ time versus now?
MR: Larger, if we see the potential for fuel cell vehicles in China take off.
BF: Larger, because I think that, all in all, the car sales in China will grow, and ICE are there.
ET: Larger.