PGMs performance during a global pandemic

PGMs DEMAND & SUPPLY

PGMs PERFORMANCE DURING A GLOBAL PANDEMIC

The supply and demand for PGMs are both forecast to rise in 2021 compared to 2020. This was always likely as both have already improved significantly since the first half of 2020, mainly owing to the world learning to live with Covid-19. By David Jollie*

David Jollie has an in-depth knowledge of PGMs and has authored various reports on the platinum and palladium markets

South Africa is among the world’s leading platinum producers (Credit: Anglo American)

PGMs DEMAND & SUPPLY

South Africa produces approximately 54% of primary global PGMs supply. If you consider total supply, including recycling, this number is about 40%. Many South African producers, including Anglo American, also invest significantly in market development efforts, and have done so over many decades, to stimulate demand for PGMs.

About 65% of demand for PGMs is from the automotive industry and is used to reduce emissions from internal combustion engines. Other key demand segments include jewellery, investment products, and a wide range of industrial applications.

Industrial uses for PGMs include their use as a catalyst both for green hydrogen production through PEM (polymer electrolyte membrane) electrolysis and in PEM fuel cell applications, including fuel cell electric vehicles.

Covid-19 impact on PGM sector

In 2020, all three major PGMs saw a market deficit (demand exceeding supply). Compared to 2019, however, 2020’s supply and demand for each metal were considerably lower – a consequence of the Covid-19 pandemic and unprecedented government responses worldwide, including widespread restrictions on socialising and mobility, while the temporary closure of the Anglo Converter Plant also affected supplies of metal.

The negative demand impact began in the first quarter of 2020, as China confronted the pandemic, but was most pronounced in the second quarter, when governments imposed severe lockdowns in most key consuming countries, shutting auto factories, car dealers and jewellery stores. By then, the pandemic was also affecting PGMs supply, especially for platinum and rhodium, as the South African lockdown (27 March to 1 May 2020) initially saw all non-surface and nonmechanised mines close.

PGMs demand began to recover late in the second quarter of 2020 and continued to do so through the second half. Global auto sales, led by China, were almost back to normal by July 2020, with auto production, where recovery was slightly slower, following soon after, and bringing with it higher automotive PGMs demand. This recovery was aided by an increase in loadings to meet emissions legislation, as well as a growing preference for personal transportation over public transportation seen in many countries. The broader industrial economy also bounced back strongly as the virus receded and working practices were overhauled, underpinning PGMs industrial offtake.

The recovery in platinum jewellery demand was slower in starting, as retail and other service sectors remained subdued, though it also gradually improved,

PGMs DEMAND & SUPPLY

with some signs that spending that would otherwise have gone to travel was going towards this sector.

PGMs supply also recovered from mid-2020 onwards. South African underground mines reopened and, while social distancing kept output slightly lower than normal, near-normal production soon resumed. Russian PGMs mine output, more important in the case of palladium, continued to show little impact from the pandemic.

Current demand and supply factors

The roll-out of effective vaccines now suggests a further upside, though how soon they bring the promise of ‘normality’ will vary by country and sector. And, in some cases, ‘normality’ will be different than it was before the pandemic.

Supply is likely to increase more substantially for platinum and rhodium than palladium in 2021. In 2020, platinum and rhodium mine output were hit much harder than palladium by the pandemic, in light of the former two metals’ greater exposure to deep-level mining in South Africa. Furthermore, the flooding at Norilsk Nickel’s mines in Russia has disproportionately affected palladium production in the first half of 2021 relative to platinum and palladium.

Covid-19 protocols are in place at South African operations, and production is unlikely to be affected, except in the event of government intervention or subsequent breakouts of the pandemic. The initial release of Anglo American Platinum’s work-in-progress inventories, taking supply above normal levels, will also proportionally increase supply more in respect of platinum and rhodium. Recycled supply will also increase – again, more for palladium and rhodium than platinum, partly due to their elevated prices, but also because of historical trends in loadings on cars now being scrapped.

All three major PGMs (platinum, palladium and rhodium) should also see solid demand growth. According to forecaster LMC Automotive, they will benefit from light vehicle production rising year-onyear in 2021, although the shortage of semiconductors will likely pose a headwind to production in the near term. Light-vehicle PGM loadings should be steady at their current high level after the last few years’ strong increases. Heavy-duty production is forecast to decline by 1%, but will increase significantly in Europe and the USA, where most PGMs demand arises. Heavy-duty vehicle PGMs loadings will increase, thanks to stricter Chinese emissions standards. Platinum should also be helped by higher gross jewellery and industrial demand, with more potential for a bounce in the former sector than the latter.

Looking ahead

The long-term fundamentals for the metals we mine remain robust, driven by stricter vehicle emissions standards in crucial markets like Europe and China, requiring higher loading of our metals, healthy industrial demand and the potential offered by the hydrogen economy.

We believe that the robust demand outlook for PGMs, combined with Anglo American Platinum’s focus on investing in fast-payback, value-accretive projects, while implementing world-best operating practices, will continue to drive strong earnings.

*David Jollie is the head of Sales and Market Insights: PGMs at Anglo American.

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