Platinum group metal (PGM) prices, where they are now, do not reflect the medium- to long-term supply-demand fundamentals.

Instead, they are driven by short-term distortions, which imply that a correction from current levels could be seen.

However, going back into a strong bull market any time soon is not being indicated.

For that to happen, there would have to be sustained global vehicle sales growth as well as curtailment of PGM production, Nedbank Corporate and Investment Banking markets research head Arnold van Graan outlined in a Zoom interview with Engineering News & Mining Weekly.

In the same way as short-term anomalies drove up the exceptionally high pricing of 2021/22 at the top end of the cycle, short-term anomalies have helped to drive down prices at the bottom end of the cycle.

These include the destocking of rhodium by the fiberglass manufacturing industry in China, the movement of Russian palladium to China, arguably at a discount, as well as the less-discussed but very pertinent lower- than-expected vehicle sales of the last few years.

“Essentially, we just haven’t sold as many internal combustion engine vehicles as we anticipated and I think that is part of the larger, more challenging situation facing the market and that has contributed to the drop in prices, in our view,” Van Graan pointed out.

“The other big catalyst, in our view, is we need to see PGM production being curtailed. Some of the mining companies have already started to trim some production on the edges, but the numbers are fairly small at this stage.

“To have a meaningful impact on PGM prices, we need to see more production being curtailed, and it’s our expectation that over the next year or so, we will see more announcements to that effect.

“It’s not an easy decision. It’s not easy to restructure mines. It’s very hard to close mines and put them into care and maintenance. There are a lot of factors that need to be considered before you get to that point.

“But for us, a reduction in supply would be a key catalyst and if we see that in conjunction with strong internal combustion engine vehicle sales, we should see a sustained recovery in PGM prices,” said Van Graan.

Engineering News & Mining Weekly: How does the uncertain market for battery electric vehicles – EVs – affect the investment case for platinum group metals, particularly in the traditional use of PGMs in catalytic converters?

Van Graan: There are two elements for me when it comes to EVs. The one is that they are a threat, but a very timeline- dependent threat. In five to ten years, there’s a real risk that we will see a significant portion of internal combustion engine demand being eroded by EVs. However, I think a lot of the EV forecasts currently in the market are overly optimistic, and that brings me to the second element. Because we have EV penetration rate forecasts that are sometimes almost disconnected from reality, they are an overhang on the PGM investment case. Essentially, people look at investing in PGMs, look at some of these high EV forecasts and say, well, it’s very hard to make a longer term bullish case for investing in PGM.

What it comes down to is that EVs seem to be a perpetual overhang on the PGM investment case. I think that risk is real, but more so in the longer term. In the short term, it’s almost as if it’s clogging the headlines and every time you think about PGMs, you see these headlines about EV penetration rates and EV growth, and it just raises questions about the investability of the PGMs sector. That is having a negative short-term impact on PGM prices, and it has for some time now. It continues to weigh on the PGMs investment case and then ultimately also PGM prices.

In the energy transition context, what role do PGMs play in fuel cell and hydrogen technologies, and why is significant demand from this market not expected for several years?

Although fuel cells and the fuel cell narrative have been around for as long as I’ve been an analyst, I have to say that there’s been a shift change in fuel cell and fuel cell technology. A lot of the technologies that have been talked about in the past have been brought much closer to commercialisation over the last few years. The other point is the global decarbonisation drive. That’s a big shift change and it has supported the development and commercialisation of some fuel cell technologies. If we’re going to decarbonise the world, there have to be changes in the way we generate and consume electricity and fuel cells and hydrogen is a key component of that energy transition. Bringing that back to PGMs, these are very special metals – and that’s not my quote. One of the mining CEOs always points out that PGMs are special metals, and that’s just about their chemistry and their technical capabilities. Because of that, it is our view that PGMs will play an important role in this energy transition, with one application being fuel cells in the hydrogen industry as well where PGMs will play a role in other applications.

Regarding the second part of your question around why we have not seen that demand take off yet, I think we have seen sharp growth in fuel cell demand for PGMs, but it’s not big enough yet to move the needle. The big reason is that although a lot of these technologies have been advanced over the last few years and although some of them have been commercialised, they are still in a developmental phase, and it will take time for them to get to a point where there is mainstream uptake.

But I do think fuel cells will play an important role in the energy transition and, with that, I think we will see a sharp increase in PGMs demand in fuel cell applications in time. However, if we pull it back to some of the previous questions around EVs, unfortunately, it’s our view that fuel cell demand will not be enough to offset some of the losses related to electric vehicle PGMs demand in the near term, so there will still be a gap in PGMs internal combustion engine demand over the next five years or so.

What are the prospects for creating substantial demand for PGMs outside the automotive industry?

One avenue, as we said, is fuel cells and then we’ve seen a lot of market development being done by some of the mining companies to develop alternative markets for PGMs. Again, we’ve started to see some demand created on the back of that. The numbers are not meaningful yet, but it is starting to grow, slowly but surely, and again, it goes back to the characteristics of these metals. They are being used in many industries outside of the traditional internal combustion engine vehicle industry and I think there’s scope for alternative uses to increase and the wider use of PGMs to start taking off as the world looks for solutions to help meet the energy transition objectives.