How was mine supply hit by covid-19 in early 2020 and do you see recovery starting to happen?
With global platinum production concentrated in South Africa, the metal was severely impacted by the national response to COVID-19. Mines were required to temporarily stop operations from end-March, and despite recommencing operations from mid-April, many were not permitted to ramp-up to full production until the start of June. These closures came on the back of existing industry disruption. Back in March, Amplats announced the shutdown of the entire Anglo Converter Plant (ACP) complex, effectively halting metal output for 80 days. This inventory was planned to support refined volumes into 2022. However, with mined output curtailed, the planned build-up did not occur. The impact of COVID-19 will, accordingly, spill-over into 2021. Palladium supply was also severely impacted, although due to its greater geographical diversification, less so than platinum.
What is your outlook for platinum and palladium for 2020/2021?
Despite the pandemic, the fundamental outlook for platinum and palladium will display broadly similar characteristics to those seen over the last five years. Given platinum’s softer fundamentals compared to palladium, it is expected to realise another physical surplus in both 2020 and 2021, and palladium, driven by strong fundamentals, posting a deficit in both years. That said, the pandemic will continue to have a significant impact on these markets in 2020. Even by 2021, despite expectations of a strong recovery, neither supply nor demand is expected to completely return to 2019 levels.
Can you speak to demand fundamentals for platinum and palladium and the role of the automotive sector? Looking at things such as geographic split, automotive type, etc.
The automotive sector is the mainstay demand segment for both platinum and palladium representing 35% and 82% respectively of total demand in 2020. These metals are particularly effective in the catalytic process of converting toxic gasses and pollutants to less harmful emissions, with platinum showing greater efficiency in diesel engines and palladium better suited to gasoline engines. In 2020 and 2021 the dominant powertrain will remain gasoline or diesel-driven internal combustion engines (ICE), requiring either or both platinum and palladium.
Moving away from ICE powertrains, regionally, demand for low emission vehicles has been higher in Europe, driven by the residual memory of the diesel-gate scandal and more recently by the targeted incentives introduced by governments to support the vehicle manufacturing sector in response to the devastating impact of the pandemic.
Turning to the world’s largest car market, China has for some years had a range of regional and national incentives in place to stimulate increasing adoption of clean energy vehicles. However, given that gasoline powered vehicles are still favoured in China, palladium demand within the automotive sector has continued to grow significantly. Due to a combination of forecast growth in vehicle production and stringent emissions legislation, automotive demand for palladium in China is expected to increase next year.
While North America is only half the size of the Chinese vehicle market, palladium demand from this region is the second highest globally due to consumer preferences for large gasoline engine vehicles. Battery electric vehicles in the region are steadily gaining share but remain modest in absolute terms.
What are some of the key investment trends in platinum and palladium through 2020?
Platinum has witnessed notable price swings over the past year. After dropping to $591 on 19th March it broke through the psychologically important $1,000 in early August. Since then, however, the metal has given up most of its gains and is back to around $860 at the time of writing.
The price volatility this year is closely linked to the pandemic, but investment in platinum is primarily driven by the trajectory of the gold price. Amid continued uncertainty, investors have turned to safe-haven assets which has benefited most precious metals. ETF holdings have reached record high levels in September, but on the futures exchange, investors are turning cautions with short positions increasing ahead of long positions.
In contrast, palladium’s illiquid market and exceptional volatility have inhibited the scale of fresh investment among institutional investors.
How do the recycling and scrap markets for platinum and palladium play into supply and pricing figures?
The secondary market plays a critical role in both platinum and palladium supply. Most important is the collection of PGMs from spent autocatalysts. Higher prices do have some impact and depending on the extent of the price rise there is some potential for scrapyards to accelerate supply. The steel price can also impact the quantity and rate at which spent catalyst material is made available to the market.