PGM market to remain tight until mid-decade on rising demand and primary supply constraints - report
(Kitco News) - According to Metals Focus, the platinum group metals (PGM) market is expected to remain robust over the short to medium term as vehicle production recovery, stringent emissions legislation and growing primary supply constraints keep the PGM markets tight, despite looming economic challenges.
Further ahead, the consultancy said that the shift towards electrification and improvements in both primary and secondary supply will outweigh growth in demand from the hydrogen economy.
"The largest single driver of the PGM markets remains autocatalyst demand. For this year, autocatalyst demand will make up 82% of total palladium demand, eclipsed by 90% for rhodium. Platinum, having a more diverse range of end-uses, will only see 41% of its demand used in autocatalysis, with jewellery, chemical, then glass making up the bulk of the remainder," the authors of the report noted.
Metals Focus said that looking at the largest PGM demand sector, in the short-term, the chip shortage remains the key issue, adding that this year the shortage is the largest single cause for reduced automotive production, followed by other supply chain issues and COVID lockdowns – most notably in China.
The consultancy noted that combined, these issues account for almost 7.5M less vehicles produced overall in 2022.
"As these issues ease further over the next couple of years, internal combustion engine (ICE) vehicle production is expected to climb further. Having been a supply-constrained market for the last two years, attention will need to shift to waning demand for new cars as a potential limitation," it said.
While there is an element of pent up demand, elevated fuel prices, higher financing costs (as interest rates rise), lower real disposable incomes and concerns about a looming recession will discourage new car purchases, all of which will weigh on PGM demand and their respective prices.
Metals Focus noted that another, more existential, threat to autocatalyst PGM demand is electrification – the shift from the internal combustion engine (ICE) to electric vehicles (EVs). EVs, accounting for roughly one-in-twelve car sales this year, are set to climb sharply in the coming years.
|Polyus posts 49% decline in net cash flow from operations for H122 as gold production down 15%|
“This increasing market share eats into gasoline’s (and diesel’s) monopoly, limiting their production and, over the longer-term, reducing the total amount of PGMs required by the industry. For the time being, however, ICE vehicle production is expected to grow,” the consultancy said.
In addition to this, stricter global emissions legislation standards will also benefit PGM autocatalyst demand – namely Euro 7, China 6b, and EPA 27/CARB 24 for the key markets, but also numerous improving standards in emerging markets e.g. PROCONVE L-8 in Brazil.
Aside from autocatalyst demand, recycling will also be a key driver of PGM market balances. As well as slightly higher overall volumes, growing availability of catalysts with a higher PGM content coming back to the refining pipeline are the main reason for growth, Metals Focus added.
“This is particularly detrimental to the palladium price as, historically, it has seen a substantial rise in loadings and will therefore see the greatest gains in recycling. To put palladium’s growth into perspective, by 2027, we expect palladium autocatalyst scrap to contribute roughly one-third of total supply, up from a quarter in 2022,” the consultancy pointed out.