Outlook is gloomy for palladium and rhodium
The move towards low-carbon technologies in the energy sector brings new opportunities and risk for platinum group metals (PGMs), but for metals such as rhodium and palladium the energy transition holds downside risks that will have to be mitigated through the development of new demand sectors.
Henk de Hoop, CEO of the research and consulting firm SFA-Oxford, says demand pressure on all commodities would persist throughout 2023 due to weak economic growth.
Speaking at a recent PGMs Industry Day in Johannesburg, De Hoop said persistent interest rate hikes had “taken the voema” out of economies globally.
This, along with high inflation, the US banking crisis fallout and the war in Ukraine, had weighed on global growth prospects, with world GDP growth now expected to reach only 1.5% in 2023, compared with an earlier forecast of 3.6%, De Hoop said.
The downside risk to the global growth rate was affecting PGMs demand expectations across the board.
“GDP growth rate this year has collapsed. That is never good for any commodity and not good for car sales. Car sales have been pulled down, global GDP growth rates have been pulled down and will probably only start picking up in 2024,” he said.
Demand for new cars has a direct effect on the demand for platinum, rhodium and palladium, which are used in the catalytic converters of internal combustion engines for cars to convert harmful, polluting gases such as hydrocarbons into less harmful substances.
Rhodium is heavily exposed to this, given that about 80% of demand for the metal depends on demand from the manufacture of new internal combustion engine vehicles.
“We also see [that] car sales recovery forecasts after the Covid-19 pandemic have been consistently pulled down,” he said. There were signs car sales were starting to recover slowly, but against a background of poor economic growth 2023 was unlikely to be a “hallelujah year” for car sales recovery, he said.
In the longer term, the demand for these metals will also face pressure as carmakers switch increasingly to battery electric vehicles (EVs) that do not have catalytic converters.
The outlook for palladium and rhodium was already starting to show the effect of the rise in EVs. In addition, the recycling of catalytic converters, especially in China, was releasing large volumes of recycled metal into the market. Another market pressure for rhodium, which is used with platinum in the lining of vessels used to shape molten glass, came from glass makers announcing they would offload a amount of the metal back into the market.
De Hoop said that after 2030 the demand for palladium was expected to remain structurally weak unless new demand sectors are established.
Similarly for rhodium, falling internal combustion engine vehicle volumes and rising pressure from recycling would require the development of new demand sectors to support demand for this metal.
The outlook for platinum, however, is more favourable given its importance in the manufacture of green hydrogen, which is seen as a viable alternative to replace the use of fossil fuels in the heavy-duty transport sector.
“Globally, there is a lot of money toward developing the green hydrogen economy,” De Hoop said. Should this market take off, in the long term, from the early 2030s there could be growing platinum deficits due to strong green hydrogen support and falling supply.
Minerals Council of SA CEO Roger Baxter, who also spoke at the PGMs industry day, said the industry saw huge potential for platinum demand increasing between 34% and 51% off the base of 4.7-million ounces by 2030. This would be due to demand for platinum in the making of electrolysers for green hydrogen and for catalysts used in hydrogen fuel cells.
The challenge for SA miners wanting to benefit from this opportunity would be to prove their ability to be reliable suppliers. It is feared that SA’s electricity crisis and high mining cost inflation could effect PGMs supply, De Hoop said .
Adrian Hammond, mining equities analyst at Standard Bank, said PGMs supply from SA was under pressure as Eskom’s load curtailment could affect supply this year as much as 5%.