We need more palladium

PGMs DEMAND & SUPPLY

We need more

palladium

Ivanplats, one of the world’s strongest contenders for market dominance in the future of platinum group metals has a motto: ‘we need more palladium’.

By Olebogeng Sentsho*

These words were famously uttered by Iron Man from Marvel’s The Avengers film franchise, whose power is derived from a palladium-powered device that sits in a cavity in his chest. This assertion is apt, given that the world is currently running at a million ounce deficit for the platinum substitute.

According to Trevor Raymond of the World Platinum Investment Council (WPIC), there will be an estimated 1.5 million ounces of substitution of platinum by palladium by 2025. These metrics inform us that the demand for platinum is growing and is only getting stronger, thereby increasing the need for metals that can substitute it.

As demand strengthens and the metal price follows a parallel trajectory, an accurate market overview is necessary for us to understand the ramifications of this increase in demand and the consequences of constrained supply. Substitution is a major factor in demand studies and it is important to understand the economics of the metal being substituted and its substitute. As the largest supplier of PGMs to the global market, the macroeconomic factors in the South African mining industry influence productivity and have a huge impact on the demand and price of platinum.

Global platinum supply

The global supply of platinum and PGMs depends largely on South Africa’s ability to produce the metals. South Africa supplies some 73%, 37% and 82% of global platinum, palladium and rhodium, respectively. The increasing risk of a decline in supply from South Africa is exacerbated by the combined effects of electricity shortages, prolonged industrial action, increased costs, and a significant reduction in capital expenditure worsened by a negative legal and political environment.

As a result of South Africa’s power challenges, the continuity of South African production is uncertain. Power utility Eskom has estimated that it will take anything from 18 months to five years to address the issue. This will have a driving effect on global demand, as supply will be constrained by South Africa’s transient power supply.

Increase in the demand for platinum

The exponential growth in demand for platinum and its substitute has been driven by several key factors. The drive to reduce emissions and the carbon footprint of fossil fuels has catapulted the world into decisive action and stricter regulations regarding vehicle emissions.

In China, regulation 6/VI (which forces diesel particulate filters on all new diesel heavy-duty vehicles introduced to the market after July 2021) is a huge driver for the demand for palladium. In the PGM family, palladium is the most CO2 efficient drive train and, therefore, demand for the substitute

PGMs DEMAND & SUPPLY

The global supply of platinum and PGMs depends largely on South Africa’s ability to produce the metals

will remain quite high. In 2019, as a result of China 6/VI, petrol vehicles drove the massive increase in palladium demand.

The incredible demand for palladium and rhodium is resulting in platinum substitution and exponentially accelerating the trajectory of the growth of the palladium and rhodium market. Globally, vehicle manufacturers have had to increase the content (loading and loading ratios) of platinum, palladium and rhodium in autocatalysts to meet the stricter limits. Fossil fuel internal combustion engines (ICE) will be phased out faster and will be replaced by electric vehicles and FCEVs, along with a combination of hybrid vehicles. Hybrid diesel requires an increase in autocatalyst platinum loading.

Proton exchange membrane (PEM) fuel cells remain inextricably linked to platinum because of their size. Raymond explains that “the size of the fuel cell is large, and the electrical current density is high and it’s only platinum that can provide that kind of performance in a small enough unit to be on a vehicle. Second, what Covid-19 has done is that it has really focused the world on climate change and perhaps with less funding, because of the huge financial cost of the pandemic. So, what you’ve got is that hydrogen – if it’s generated sustainably – is a replacement of fossil fuels, and that’s the big focus and a much higher certainty that the hydrogen economy will evolve.” The significant reduction of the platinum content in fuel cells will enable platinum demand to accelerate, propelled by economic factors such as price and economies of scale related to production.

Driving platinum growth

The key driver in the growth of platinum demand will be reducing the price of hydrogen. If the price of hydrogen (or the cost of generating it) is reduced, more fuel cell vehicles will become affordable and it is this demand that is material for the growth of platinum demand. Various stress tests on the market penetration of PEM puts the demand of platinum at an increased level of 400 000 to 600 000 ounces of platinum per annum for electrolysers. Cheaper hydrogen means more fuel cell vehicles; it is estimated that fuel cell passenger vehicles will become available for sale in 10 years. This outlook compels platinum miners to rethink their strategies and prepare for the cyclical effects that will be propagated by the technology that makes hydrogen cheaper.

The constriction in supply and increasing demand will ultimately support the drive for substitution. With new technologies emerging worldwide, green hydrogen and the fuel cells that produce it will be easier and cheaper to manufacture, thereby making the products powered by these technologies affordable and ubiquitous. The demand for platinum will continue to increase because of the capacity and possibility it offers for power generation and green hydrogen.

The drive for carbon neutrality will continue to positively affect the demand for platinum and its substitutes. What remains is South Africa’s ability to address its internal challenges and take advantage of the bounty of economic development and growth potential afforded by the beneficiation of the world’s most precious metals.

*Olebogeng Sentsho is a mineral economist and the CEO of Ayana Group.

Olebogeng believes that the macroeconomic factors in the South African mining industry influence productivity and have a huge impact on the demand and price of platinum (Credit: Poppy Photography)