Think tank the Mapungubwe Institute for Strategic Reflection (Mistra) has reiterated its call for the formation of a Platinum Group Metals (PGMs) Exchange in South Africa, given that many stakeholders are losing out on value that could have been created in a less volatile market system.

The organisation on August 28 convened a dialogue between stakeholders including the South African Reserve Bank, trade unions, platinum producers and the Department of Mineral Resources and Energy, to iron out some of the concerns around the practicality of such an exchange.

Mistra in 2013 set out to investigate the desirability of a PGMs Exchange in the country, particularly with the rise of the global hydrogen economy and platinum being a key commodity to this value chain as well as that of other emerging green energy technologies.

The International Energy Agency’s statistics show that demand for hydrogen has grown more than threefold since 1975, reaching 95-million tonnes in 2022. The World Bank valued the hydrogen market at $130-billion in 2021, and estimates that it will grow by up to 9.2% a year to 2030.

Hydrogen is essential to decarbonise sectors where emissions are hard to abate, including aviation, maritime and high-heat manufacturing.

International registrar and classification body DNV forecasts global investment in producing hydrogen for energy purposes from now until 2050 will be $6.7-trillion, with an additional $180-billion poised to be spent on hydrogen pipelines and $530-billion to be spent on building and operating ammonia terminals.

Given the massive concentration of PGM endowments in South Africa and other Southern African countries for that matter, with South Africa holding 70% of the world’s PGMs reserves, Mistra, the JSE and financial services firm Pan-African Investment and Research Services (Pairs) deems it prudent to extract the maximum value from this national resource.

During the dialogue, Mistra executive director Joel Netshitenzhe emphasised that South Africa must carve its rightful place in the global PGMs value chain, and not do future generations a disservice by not leveraging this unique opportunity.

He said a PGMs Exchange could unlock financial and marketing services development, human resource benefits and, most importantly, price discovery benefits.

Apprehensions have been raised, however, with regard to the ability to implement a PGMs Exchange, given that it would be a voluntary initiative for PGM producers. There are also the technical matters involved, including whether the implementation of an exchange should be conducted in a phased approach or not.

Essentially, Pairs head Dr Iraj Abedian noted, a PGMs Exchange would create a platform for exchange of capital between those who have it and those who need it, as well as introduce a new mechanism for price discovery, lest the commodity’s pricing continue to be determined by a select group of stakeholders in London, which are not part of the South African PGMs value chain, as has been the case with the PGMs market for decades.

The establishment of a commodity exchange is an example of a strategic industrial policy intervention, which creates a marketplace to facilitate the exchange of mineral commodities and related derivatives.  

Effective price discovery is important for PGM producers and beneficiators to extract the maximum value from this asset, to which an exchange can be a reliable mechanism, Abedian pointed out.

He highlighted that market prices were currently being manipulated and abused, in a process that contributed to value being lost for mineworkers, government and the industry in general, since PGM producers are highly vulnerable to market volatility.

Price discovery results from the rules-based interaction among market participants, including buyers and sellers, for the exchange of a commodity. During this interaction, process information reflecting supply and demand fundamentals is revealed by the market participants, which facilitates the discovery of a price and the conclusion of an exchange contract.

An e-platform, for example, means that location and time-zone effects can be eliminated in the price discovery process, as well as facilitate continuous, real-time interaction.

Abedian, the JSE and Mistra believe a PGMs Exchange platform will usher in transparency and accountability in the market, and therefore increase predictability. In turn, predictability ensures a less risky environment for investors and beneficiators to come on board. It could also provide for more effective community-corporation planning, greater labour protection and more predictable fiscal revenue projections.

Abedian compared the current manual price discovery process in the platinum market to that of colonialist behaviour, where South Africa had to “take” whatever was decided by a select group of stakeholders, at the expense of local value.

He was confident that South Africa ticked all of the technical requirements to establish a PGMs Exchange, including having more than sufficient share of the commodity globally, a well-regulated financial market, socioeconomic stability, a history of managing capital markets prudently, and a political system that was in support of a regulated market system and in being a non-disruptive nation among trading partners.

Abedian added that venture capital to develop the PGMs industry further would follow in a more open, lower risk environment. “Time is of the essence, since the establishment of a PGM Exchange could take five years, and in the meantime, South Africa’s resources are sold at undervalued prices.

“We can do away with exporting value to London, if every spot and futures contract can be written in the South African jurisdiction, with local lawyers and local banks, with the nation’s best interests in mind. Besides the smelting beneficiation in South Africa, the financial beneficiation can also be done here,” Abedian stated.

Mistra and Pairs agree that, in the event that the hydrogen economy takes off, PGMs producers will have a responsibility to ensure global security of supply, supply which needs to be at reasonable and predictable prices linked to the cost of production and not merely derived from market speculation.

While the organisations recognise that a PGMs Exchange will not be a panacea for the country’s economic challenges, it could be a supportive mechanism of long-term growth and stability in the PGMs mining sector, and could enhance economic linkages across the value chain and other sectors.

An undertaking of this nature will require synergy between policy, legislative and regulatory frameworks, as well as public-private partnerships, which Mistra is advancing through its organised dialogues, among other initiatives.