PGM Prices Fall but Markets Remain Tight as Covid-19 Hits Supply and Demand
Gross platinum demand rose by six per cent in 2019, pushing the market into deficit, according to estimates published in Johnson Matthey's latest PGM Market Report. Investment demand surged to a record 1.13 million ounces last year, offsetting lower consumption in automotive, industrial and jewelry applications.
Automotive demand for palladium and rhodium soared to all-time highs during 2019, as the phase in of strict China 6 legislation caused a step-change in PGM loadings on Chinese cars. As market liquidity worsened, both metals saw steep price gains which continued into early 2020. Palladium set a record of more than $2,800 per ounce in February 2020, while rhodium surged to all-time highs above $13,000.
PGM prices fell steeply in March 2020, as the COVID-19 pandemic triggered sell offs in equity and commodity markets. Supply and demand for PGM are forecast to contract sharply this year, as lockdowns and other public health measures create significant challenges for the manufacturing, transportation and mining sectors.
A national lockdown in South Africa resulted in temporary shutdowns at many PGM mines and refineries from late March. Although South African mines were permitted to operate at 50% of normal levels from mid-April, the introduction of physical distancing measures will have a lasting impact on mining volumes. There will also be a steep fall in secondary PGM supplies, due to severe disruption to recycling networks and a sharp decline in the number of vehicles being scrapped.
Alison Cowley, Principal Analyst at Johnson Matthey plc, commented: "The adoption of stringent infection-control measures will limit PGM mining volumes, especially at labor-intensive mines in South Africa. However, to date Russian production has been relatively unaffected. This means that platinum and rhodium supplies are likely to be more heavily impacted than palladium. Meanwhile, the recycling network is grappling with business shutdowns, transportation difficulties and financial pressures. Some scrap collectors may be unable to fund the purchase of secondary materials, while processors are trying to reduce work in progress to generate cash. From mid-2020, we could see a steep drop in secondary PGM supplies."
Autocatalyst PGM demand will fall sharply in 2020, reflecting temporary closures at most major automotive plants and a contraction in consumer demand for new cars. Based on third party forecasts, light duty vehicle production is expected to fall by around 20% this year, while car companies may also seek to reduce the PGM content and cost of their emissions control systems. In China, new regulations may enable car companies to implement catalyst changes more quickly. This could allow some domestic automakers to thrift palladium and rhodium, and to accelerate platinum substitution programs.
The impact of the COVID-19 crisis on industrial PGM demand in 2020 will vary significantly between sectors and regions. While end use segments such as textiles and automotive have been severely affected, others remain relatively buoyant. This is particularly true of chemicals used in the manufacture of personal protective equipment (PPE), drugs and disposable medical products. Chinese PGM demand will also be supported by the completion of capacity expansions under the government's current five-year plan, and by lower PGM prices. In March, platinum purchasing by industrial consumers on the Shanghai Gold Exchange hit an all-time high.
Rupen Raithatha, Market Research Director at Johnson Matthey, commented: "A steep price decline in mid-March triggered exceptionally strong demand for platinum ingot in China and Japan. Sales on the Shanghai Gold Exchange totaled around 340,000 oz in March, more than twice the previous monthly record. Most of this buying was by industrial customers, who took advantage of low prices to pre buy metal required for planned capacity expansions. Demand for platinum investment bars in Japan also set an all-time monthly high, as the yen denominated retail price sank to a seventeen-year low. This contributed to shortages of platinum ingot and led to a steep rise in platinum lease rates to around 10% in late March."