When Northam Platinum launched its bid for Royal Bafokeng Platinum (RBPlat) in November 2021, it looked like a smart strategy. Northam was confident of long-term prospects in the platinum group metal (PGM) market, expecting that the adoption of battery electric vehicles, which require no PGMs in autocatalysts, would be slower than forecast. PGM supply was in decline.
Then, in June last year, Northam walked away from its offer, agreeing to sell its 34.5% stake to rival bidder Impala Platinum (Implats) for R13.1bn. Not coincidentally, metal prices were in freefall. In these changed conditions holding cash trumped expansion.
“This time two years ago, palladium was trading at around $2 300, and rhodium $18 000,” says Metals Focus, an independent precious metals consultancy. “Fast-forward to today’s respective $1 000 and $4 500 and it is easy to appreciate how the sharp fall in the PGM basket price is one of the greatest factors shaping the mining industry.” It calculates that about half of the metal’s South African miners are lossmaking and reliant on by-product sales like iridium and chrome.
We are focusing on maintaining a strong balance sheet. These are very inward-looking strategies, quite defensive, as we are preparing for a longer, harder market. If we are wrong, we will be happy – Paul Dunne, Northam Platinum
Miners have lowered overhead costs, but a severe reduction in metal supply is still likely.
One casualty is Tharisa’s $391m Karo Platinum Project on the Great Dyke in Zimbabwe, where construction has been slowed. The project is expected to produce 190 000 ounces a year of PGMs when it finally opens but after spending $110.5m so far Tharisa CEO Phoevos Pouroulis opted for caution. His decision to align the project with the market was “a measured one”, he said.
Northam deferred workstreams at Zondereinde, and temporarily halted decline developments at its Booysendal and Eland mines. Anglo American Platinum (Amplats) and Implats are in restructuring talks putting a total of 7 600 jobs at risk.
“We are focused on safe production at the lowest possible cost, and project execution at the best price,” Dunne says. “We are focusing on maintaining a strong balance sheet. These are very inward-looking strategies, quite defensive, as we are preparing for a longer, harder market. If we are wrong, we will be happy.”
Brakes on EVs
As the world tries to move away from fossil fuels, governments have imposed taxes on carbon emissions and offered incentives to switch to renewable energy sources, driving a revolution in the automotive industry and electricity utilities.
In the past 20 years, PGM consumption in autocatalysts of internal combustion engine (ICE) vehicles has increased in line with waves of stringent emissions standards. Now, large parts of the world are moving to battery electric vehicles (BEVs) which operate without autocatalysts. Several European countries have even set dates (from 2025 to 2035) by which ICE vehicles may no longer be sold. (Others have rowed back on their targets.)
“Decarbonisation of road transport is at the heart of price pressure,” Amplats CEO Craig Miller told the recent London Indaba. “Road transport accounts for 10-15% of emissions, so decarbonisation of the sector is something we all need to work on,” he said. There is evidence, however, that EV sales are slowing.
BEVs accounted for 2% of automotive production in 2019 and currently account for 12%. “We now expect to see different technologies come forward to cater for different types of vehicle demand,” says Miller. Meanwhile a shift to the political right in Europe could slow the decline in ICE sales. “I have no doubt that the ban on ICEs by 2035 will be moderated, I don’t know how and when, because it is unrealistic,” says Miller.
Yet even with these factors easing the rate of growth in EV sales, ICE vehicles remain in structural decline. Therefore, automakers have no incentive to hold significant PGM inventories, says Metals Focus.
What’s likely to emerge is a less binary picture – one of EVs replacing ICE vehicles – to be replaced by an outcome in which PGM automotive demand trends down gently and EV sales are partly displaced by hybrid EVs. These are vehicles that use some PGMs in their batteries but less metals than in ICE vehicles.
So the best outcome miners can expect is softer ICE decline or moderating EV growth, or even both. But for an ideal world miners would like to see a more rapid advance in commercially viable fuel cell electric vehicle (FCEV) technology.
FCEV technology uses platinum in a fuel cell to generate energy from hydrogen. Amplats, which has been trialling FCEV in its heavy haul trucks, is a believer. It partnered the rollout of hydrogen FCEV taxi fleets at this year’s Olympic Games in Paris. “We believe FCEVs will prevail for those who want anxiety-free travel,” says Miller. “The next stage is to generate greater public understanding and excitement about FCEVs.”
Wilma Swarts, director of PGMs at Metals Focus, says her company is optimistic about the hydrogen economy, especially hydrogen production through water electrolysis and its consumption in storage, transport, mobility and stationary supply.
Metals Focus forecasts an increase in demand for PGMs in hydrogen applications to about 100 000 oz this year from 60 000 oz in 2023. By the end of this decade, PGMs in hydrogen applications will rise sixfold, she says.
How will PGM prices perform?
The speed and shape of the green energy transition and its effect on PGM prices is difficult to predict, even in the short term. But the expectation is for subdued pricing while market forces influencing ICE, EV and FCEV vehicles take effect.
Dunne, who has prepared Northam for difficult trading conditions until after 2025, says high interest rates are also deterring hard commodity purchases. Metal stocks will fall and not necessarily be replenished. High interest rates will also deter car purchases. Current US economic data points to a more gradual easing in rates later this year.
Structural changes in China, which represents 30% of global vehicle purchases, also exert downward pressure on the PGM market. BEVs adoption is high at about a quarter of the vehicle market. China has also engineered a reduction of PGMs in ICE vehicles which has released small, but nonetheless influential, volumes of rhodium back into the market.
As Dunne explained, management of metal inventories by buyers can be a reliable guide to market direction. Metals Focus says they are key. It cites the example of platinum last year where a supply deficit of 867 000 oz was still not enough to convince the buyers to build stocks given some 10.2 million oz in above-ground stocks or some 15 months of demand cover.
The same is true of palladium, where above-ground stocks are equivalent to 14 months of demand. For rhodium, above-ground stocks are expected to fall to 660 000 oz by end-2024, equivalent to seven months of demand cover, which Metals Focus expects will support the price.
Swarts said there was a strong possibility that platinum prices would end 2024 higher than at present, due to the ongoing displacement of palladium in gasoline cars. Palladium prices are expected to tick up slightly, but “it has essentially flatlined”, she says, as the combined effects of electrification and substitution are likely to exert downward pressure on palladium prices. The rhodium price is expected to remain fairly steady in the short term, due to lower above-ground stocks.
Metals Focus forecasts an average platinum price of $960/oz in 2024, down 1% on 2023’s $965/oz based on inventories. It sees palladium 23% weaker at an average of $1 030/oz (vs $1 337) and rhodium averaging about $4 750/oz (2023: $6 611), down 28% for similar reasons of stockpiles.
Naturally mining companies contemplating expansion will take a longer-term view on prices. After all, it takes a decade or more to build a mine from scratch.
Swarts says production cutbacks, inventory depletion or a new source of demand could spark a turnaround in pricing, especially if lower production coincided with new demand.
“We do think however that while platinum will benefit from hydrogen demand, palladium and rhodium will continue to struggle unless there is a new demand source for palladium especially,” she says. “This is because both palladium and rhodium are exceptionally exposed to autocatalyst demand, which makes up around 80% and 90% of total demand for each metal respectively.”
We believe the current basket price is still at unsustainable levels, which could lead to further growth capex cutbacks and restructuring and mine closures – Paul Dunne, Northam Platinum
Nedbank Securities analyst Arnold van Graan says deficits or surpluses tend to have less impact on metal prices over two years than, say, the global vehicle market, short-term production disruptions, and multi-year production cuts. He thinks the average PGM basket price will improve over the next couple of years, assuming ICE sales continue to grow.
Reductions in primary supply, especially South Africa, were insufficient to shape prices. “We believe the current basket price is still at unsustainable levels, which could lead to further growth capex cutbacks and restructuring and mine closures, as was the case from 2010 to 2016 – when the basket price was at similar levels for an extended period,” Van Graan says.
Says Dunne: “The good news is that the industry will correct. At these prices, we will see less supply in the market.” Miners were delivering negative margins. “The implication for each company depends on each one’s view on how long the cycle will last and when the reversal will come. We hold the view that turnaround will take one to two years.
“I don’t see too much downside from here. Price discovery is very good for the biggest metals. These factors are all factored into the price and I believe we are at, or very close to, the bottom. Certainly, neither miners, refiners, nor recyclers can make a risk return at this price level. It is not a sustainable market and it will resolve itself – the question is how and when.
“These are very special metals,” says Dunne. “Their characteristics and role in many reactions makes them irreplaceable and we will continue to mine them. We see great opportunities in PGMs.”