COVID-19 Impact on PGMs Part II?
25 May 20200 comments
Just 2 months ago we penned our first article about the impact of the novel coronavirus, COVID-19 on Platinum Group Metals. As well as the tragic loss of life, the spread of the virus continues to disrupt economies across the globe, resulting in unemployment, business closures, and market volatility. Certainly, much has already changed in the space of 2 months…
Back in March, we noted significant falls in the prices of palladium and platinum caused primarily by major sell-offs by investors and as a result of China posting a larger than anticipated economic slump. Although prices have since leveled off, demand for PGMs, going forward, remains uncertain, particularly from the automotive industry where the need for PGMs in the production of catalytic converters is likely to see heavy reductions in 2020.
Although China’s vehicle production plants are now beginning to re-open, temporary plant closures across Europe and the USA will lead to the production of new vehicles falling significantly in the short term. As well, it is believed that consumers will delay new purchases, due to employment uncertainty and the lower disposable income available. As a result, the latest industry forecasts suggest an annual decline in sales of approximately 20% in 2020. This, in turn, would result in an estimated decline of 21% in autocatalyst platinum demand and a somewhat lower 15% reduction for palladium and rhodium.
China’s vehicle production plants are now beginning to re-open
A little of this reduction may be offset by other sectors; for example, PGMs are used in the manufacture of medical-grade silicones for Personal Protection Equipment (PPE), and in catalysts for Active Pharmaceutical Ingredients (APIs) production, including some COVID-19 antibiotics. There is also some evidence that Japanese and Chinese jewelers are speculating, buying now when prices are lower, to meet future demand. Nevertheless, these are only small positives, given the overall importance of the automotive industry to the PGM market.
The major supplier of primary PGMs, South Africa,has been under heavy lockdown since the end of March. Although the mining sector was given special government dispensation to reopen in mid-April, mines are only allowed to operate at 50% of previous production levels, and a return to full operational levels is not expected for several weeks. As well, the labor-intensive methods employed in the deeper shafts where PGM’s occur do make social distancing an almost insurmountable challenge.
For the catalytic converter recycling market, times are tough. In the short term, a large number of businesses in the catalytic converter supply chain have closed down temporarily due to COVID-19. Those that have been able to continue operations have in turn encountered logistics difficulties, especially when it involves international freight. As well, as we all know, many operators in the market are private businesses with limited cash resources and may be forced to cease trading completely in the medium term. Finally, the expected fall in demand for new vehicles this year will result in fewer old vehicles being scrapped, reducing the supply of scrap catalysts.
South Africa’s mining industry’s employee
Palladium v Platinum
We have previously reported on the likelihood of substituting platinum for palladium, as a result of the widening price disparity. In March we stated “some analysts are saying this could start to take place from as early as 2022.” The COVID-19 impact is already starting to increase focus on costs in the automotive industry, and it is possible that this substitution could occur sooner, providing it does not impact on the automotive manufacturers need to meet emissions standards. If this was to occur then the two PGM’s would almost certainly see a converging of their respective prices earlier than previously expected.
Turmoil continues in the PGM market. The COVID-19 pandemic is inflicting serious damage on both supply and demand for PGMs and it is still too early to make forecasts for 2020 - other than to say it is going to be a rollercoaster of a ride! Indeed, as recently as last week, renowned analysts Johnson Matthey went on record to state
“Given these extreme levels of uncertainty, we do not believe that it is possible to make a meaningful prediction of market balance this year.”
Nevertheless, for both economic and environmental reasons, the incentive to recover PGMs from scrap catalytic converters will stay strong, and for those who are prudent and have the resources (and liquidity) to weather the storm, the future, post-CoVID-19, remains positive.
Take care, and stay safe!?