Page 23 - Bullion World Volume 4 Issue 7 January 2024

Bullion World | Volume 4 | Issue 7 | July 2024

Constrained supply • A switch from palladium to platinum is favouring
A protracted price downtrend in platinum group metals the latter. After palladium’s premium over platinum
(PGM) is constraining both primary supply from mines reached a record high in 2019, auto manufacturers
and secondary supply from scrap. moved towards platinum. Although platinum has
regained its premium over palladium, its use in
Narrowing profit margins have prompted major miners vehicles is unlikely to fall materially until 2026 as
to restructure to optimise costs. This will likely delay these platforms normally last for seven years. The
growth projects and keep some mines in “care and auto catalytic demand ratio for palladium to platinum
maintenance” mode. The closure of aging mines will is still above 2.6 against the ratio of 2.0 in 2013, so
weigh on production in 2024, while a delay in the there is room for more substitution.
expansion of capital expenditure might weaken long-
term production growth. • Stricter emission regulations favour higher
PGM loadings, another tailwind for platinum
A slew of operational challenges over the last two years demand. Europe is set to switch from Euro 6 to
has diminished supply from South Africa, which generally Euro 7 in July 2025 for light-duty vehicles. The shift
supplies about 70% of global output. With prices still will result in stringent emission regulation for heavy-
below the cost of production, many mining companies duty vehicles, favouring higher loadings. In North
are expected to downgrade production guidance. In America, the phase-in of federal Tier 3 legislation
South Africa, production is likely to be steady near will see a gradual increase in PGM loadings. The
4,000koz in 2024, 10% below the long-term pre- implementation of California’s Heavy-Duty Low NOx
pandemic average production of 4,421koz. omnibus regulation also bodes well for demand.
Mine production in Russia is set to decline after Heavy-duty vehicle production is set to grow in
increasing by more than 300koz in 2023. This loss 2024, which may require higher platinum loadings.
of supply will outweigh marginal gains in Zimbabwe This will offset some of the demand weakness due to
and North America. Overall, global mine production is a contraction in light-duty vehicles this year.
estimated to contract by 2% y/y to around 5,700koz in
2024. • According to the Bloomberg New Energy
Finance, hybrid car sales will rise annually by
Slower recycling rates have reduced scrap supply by 12% through 2030. Internal combustion engine
38% from the peak of 2,092koz in 2019. Recycled (ICE) vehicle sales are set to slow by more than 2%
supply, as a share of overall supply, has fallen to 19% annually over the coming years, but consumers may
from the long-term pre-pandemic average of 25%. We prefer hybrid vehicles before switching to battery-
expect a modest increase of 30koz in 2024, bringing it to electric vehicles (BEV). Assuming 40% penetration
1,330koz. of electric vehicles (EV), ICE vehicles will account
for nearly 35–40% of total vehicle sales, which will
The decline in the supply of scrap is linked to an increase sustain platinum demand for auto catalysts. Plug-
in the average life of most vehicles over the last 15 years. in-hybrid (PHEV) and extended-range EVs are
For European vehicles, that rose from under nine years variations in the transition to BEVs.
prior to 2009 to 12.3 years in 2022. Better durability,
increasing ownership rates by lower income earners and • On balance, demand for platinum as an auto catalyst
a decline in new registrations due to supply bottlenecks will grow by 1% to 3,375koz in 2024, the highest
(due to chip shortages, for instance) in 2020–22 together since 2016-17.
increased the number of old vehicles on the road and
reduced the number being scrapped. • A critical metal in energy transition
Many countries are turning to hydrogen as a
While secondary supply will be key in offsetting the transitional fuel source in moves toward carbon
decline in mine supply, a material recovery looks unlikely neutrality. It can help decarbonise sectors such as
until 2026. steel, heavy-duty road transport, shipping, aviation,
and chemicals. Platinum is a critical mineral in
Demand looks protected building this technology for upstream production via
Auto catalyst demand usually accounts for 40% of the electrolysis and fuel cells for mobility and stationary
total platinum demand. But sluggish auto production power applications.
for this year will have only a limited impact on overall
demand for several reasons:

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