Is this man platinum’s greatest threat?
Industry weighs impact electric cars from Musk and others will have on the metal
WHILE gold has benefited from the uncertainty afflicting the global economy over the past decade, platinum has not been as lucky.
The fate of the white metal, which with gold makes up the bulk of South Africa’s export earnings, has been directly tied to the poor health of the economy.
The metal is stuck in deficit position as the result of years of underinvestment and production cutbacks — with executives at large mining houses expecting the situation to only deteriorate over the next decade.
And more trouble could be coming down the track: the Elon Musk-inspired electric motor revolution that poses perhaps the biggest threat to the metal’s worth.
Electric cars such as Musk’s Tesla operate with a lithium-ion battery and do not use any platinum. Internal combustion engines need platinum to serve as an auto-catalyst to limit the emission of carbon dioxide into the atmosphere.
Some 45% of demand for platinum group metals comes from the automotive industry, according to the World Platinum Investment Council.
The jury is still out on just how big an impact the electriccar revolution in Silicon Valley will eventually have on one of South Africa’s more important exports. The next decade will be the deciding factor.
Ben Magara, CEO of Lonmin, South Africa’s third-biggest miner of the metal, is unfazed. While “electric cars can come and take a slice, they’re too negligible a slice”, he said.
Magara said he believed those analysts who predict that electric cars will not have a market share of more than 5% over the next decade.
“The world still needs penetration of electricity, never mind electric cars, so it’s still a long way off.”
Concerns over the long-term demand prospects for platinum have plagued the metal since it peaked in March 2008.
Lacklustre demand has prompted executives such as Magara to call on those countries most affected by the more than 50% plunge in its price since its peak to adopt the metal as a reserve holding, much like gold.
It’s a plan that has not been adopted.
With the current dollar price of platinum just short of $1 100 (about R15 490) an ounce, and despite a fall in the rand’s value against the dollar, most platinum producers are marginal operators. In the past four years, the JSE’s platinum miners index has fallen more than 50%.
With central banks and especially those in the Brics bloc unlikely to be buying platinum as a reserve, technological developments in the vehicle industry provide the clearest guidance on future demand.
Johnson Matthey, the world’s biggest manufacturer of the catalytic converters used in vehicles to control carbon emissions, said the electric car over the medium term would not account for a “significant proportion of vehicles”.
Peter Duncan, general manager of market research at the British firm, said: “It’s still going to be a very small percentage of vehicles.
“I don’t see that in a 10-year timeframe as something of a significant impact on PGM demands. Longer term maybe, but not in the next 10 years.”
Despite the industry’s dismissive view of the electric motor’s impact on platinum — at least in the short to medium term — some are more circumspect.
The question of when electric vehicles would start to show fast growth was still “a big unknown”, said Allan Gray’s platinum analyst, Tim Acker.
“If the shift to electrical vehicles takes place sooner than people are expecting then that would be very negative for the platinum price and platinum producers,” he said.
And whether it’s five years or 50 years, it’s inevitable, he said.
Sales of hybrid cars, which have both a petrol engine and an electric motor, are growing at a much faster rate than electric cars because of affordability.
Northam Platinum CEO Paul Dunne said hybrid cars were more favourable for platinum because there was a slightly higher loading for PGMs in the exhaust due to the switching of the engine between fuel and electricity.
While industry players see the threat of a world full of electric cars as being some way off, developments in Silicon Valley led by South Africa-born Musk, as well as those spearheaded by traditional vehicle manufacturers in Europe, need to be closely followed.
The influence of new technology is growing, even locally — albeit slowly.
Only one fully electric car, the Nissan Leaf, is sold in South Africa. Ninety have left the showroom floor since it entered the local market three years ago.
“The lack of public charging infrastructure and incentives from government add to the slow uptake,” said Nissan spokeswoman Veralda Schmidt. The manufacturer is partnering with BMW to increase the number of charging stations for hybrid and electric cars.
Rumour has it that the more affordable Tesla Model 3 will reach South Africa in 2018.