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Platinum under the wheels: how precious metals are becoming cheaper due to electric vehicles

20.06.20240

Platinum under the wheels: how precious metals are becoming cheaper due to electric vehicles

    Copy link Photo by Alexander Manzyuk/TASS Photo by Alexander Manzyuk/TASS Platinum and palladium are precious metals whose main application is not the jewelry industry, but the automotive industry. Because they are used in the production of cars with internal combustion engines, the rise in popularity of electric vehicles has contributed to lower prices for both of these metals. However, experts interviewed by Forbes believe that the falling cycle has ended, and even a slight recovery in value is possible

    Palladium and platinum are the most well-known platinum group metals. Unlike other precious metals, they are primarily of industrial importance and are used mainly as part of catalysts in automobile engines to neutralize exhaust gases.

    Prices for these metals are falling. Palladium traded at $882 per troy ounce on June 12, having fallen in price by 46% over the year, from $1,411 on June 12, 2023. The price of platinum on June 12 was $964 per ounce, falling from the previous peak of $1,059 per ounce recorded on May 20. For the year as a whole, platinum fell just 1.7% from $982 per ounce on June 12, 2023. The main culprits in the decline in prices for platinum group metals are electric vehicles, Forbes interlocutors say.

    According to the United States Geological Survey, the largest producer of palladium in the world is Russia, which accounted for about 44% of global production of this metal in 2023. It is followed by South Africa (34%), Canada (8%), USA (7%) and Zimbabwe (5%). The same countries also produce platinum, but here in first place is South Africa, whose share accounts for about 67% of world production, in second, with a strong lag, is Russia (13%), in third is Zimbabwe (11%), followed by Canada (3%). ) and the USA (2%). In Russia, the main producers of platinum group metals are Norilsk Nickel and Russian Platinum.

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    Why prices are falling

    The fall in prices for platinum group metals is largely caused by the gradual switching of manufacturers from cars with internal combustion engines to electric vehicles, according to a Johnson Matthey review. In 2023, of the 9.354 million ounces of palladium produced globally, the automotive industry used 8.745 million ounces (93.5%). Of the 7.091 million ounces of platinum produced in 2023, 3.342 million (47.1%) were used in the automotive industry, and 1.361 million (19.2%) were used in the jewelry industry. The rest is used in the glass industry (776,000 ounces – 10.9%) and chemicals (647,000 ounces – 9.1%). Thus, it was the automobile industry, as the largest consumer of platinum group metals, that influenced prices. 

    Palladium is used primarily in gasoline-powered cars, and platinum is used primarily in diesel engines. Two factors contributed to the decline in palladium prices, says Maxim Khudalov, chief strategist at the investment company Vector X. “The first was the turn of automakers towards platinum in the production of catalysts for internal combustion engines,” he recalls. “The second development was that delays in palladium supplies from South Africa due to power outages have been largely overcome. All this has added to negative market expectations regarding the prospects for the global economy, which also leads to a drop in investor interest in this metal.” The demand for platinum, in his opinion, despite some pessimism in the market regarding the prospects for the production of diesel cars, remains stable due to its use in the production of fiberglass, optical glass, jewelry and some other industries. “Therefore, the price of platinum remains close to $1,000 per ounce,” says Khudalov. He also recalls that the prospects for cars with internal combustion engines are in doubt amid the growing popularity of electric vehicles.

     

    According to Metals Focus, the share of electric vehicles that do not use platinum group metals has grown from 11% of total vehicle production at the beginning of 2023 to 14% in May 2024. The drop in consumption of these metals has been offset somewhat by the rise in production of hybrid vehicles that require them. As of May 2024, hybrid vehicles accounted for 22% of total passenger car production, up from 18% at the beginning of 2023, Metals Focus analysts calculated. 

    The decline in prices for platinum and palladium is due to a decrease in orders for them from automobile manufacturers, agrees independent analyst Leonid Khazanov. “However, the situation is not as simple as it may seem,” he adds. “The fact is that manufacturers of cars with internal combustion engines previously accumulated significant reserves of both metals, so today the demand for them is weaker, and their production volumes have decreased over the past one and a half to two years. The growth of production of electric vehicles is slowing down on the planet as a whole, but there is an increase in the production of hybrid cars equipped with internal combustion engines.”

    A recent review of the British company Johnson Matthey (JM), specializing in the production of automotive catalysts with platinum group metals, states that another reason for the decline in prices in 2023 was a sharp increase in supplies of these metals from Russia to China. According to JM estimates, palladium supplies from Russia increased by 17%, to 2.7 million ounces, and platinum by more than 70%, to 780,000 ounces. “Russian platinum group metals were offered at discounts, as a result of which in the second half of 2022 and most of 2023 their prices in China were lower than international prices. This discount not only allowed Russian metals in China to squeeze out suppliers from other producing countries, but also led to a decrease in their purchases by Chinese industry from their own Chinese enterprises,” the review says. 

     

    Palladium has been in a long-term downward trend since April 2021, when its price reached almost $3,000 per troy ounce, notes Nikolai Pereslavsky, head of the economic research department at CM Service. At that time, the expert says, platinum cost more than half as much as palladium, and manufacturers of automobile catalysts preferred to use it in production. “In addition, the high price encouraged palladium producers to increase production volumes, which increased the supply of metal on the world market,” notes Pereslavsky. “The laws of free trade are inexorable: an increasing supply of a product is followed by a decrease in its price.” Although already in 2023 there was no talk of any oversupply of palladium, on the contrary, consumers faced a deficit of about 1 million ounces. 

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    The collapse is cancelled

    Forbes interlocutors believe that prices for platinum group metals have stabilized. “I don’t expect a further collapse in prices,” says Sergei Suverov, investment strategist at Arikapital Management Company and associate professor at the Financial University. — Firstly, the production of cars with hybrid engines should increase, in particular in developing countries; Accordingly, the demand for platinum group metals for catalysts will increase. Secondly, the reserves of metals that auto companies have accumulated must run out, and they will need to be replenished.” 

    In the future, the production of cars with internal combustion engines will slowly go down, and cars with electric motors and hybrids will rise, says independent expert Khazanov. “On the horizon of 2024-2025, we can expect a change in the trend of declining prices for platinum and palladium to growth. Already, prices are falling more slowly, and I do not expect the price of platinum and palladium to fall below $900 per troy ounce in the next six months,” the expert says. — Platinum and palladium prices can be supported by their key Western producers Anglo American Platinum (operates also in South Africa), Sibanye Stillwater and Impala Platinum, which are experiencing problems with ore mining, energy supply and sustainability of income generation, which reduces their profitability . Manufacturers are considering various options to reduce costs and suspend planned investment projects.” 

    Today, palladium quotes are approaching strong support around $900, says Nikolai Pereslavsky from CM Service: “If we add to this that palladium is today cheaper than platinum by almost $60, or 6%, then it is likely that it will maintain the $900 level in the medium term. and in the short term it has every chance to grow to the level of $1000.”  Platinum, according to Pereslavsky, is in a sideways long-term trend, that is, in a situation of uncertainty in which price fluctuations are not so great as to make it possible to clearly predict their further movement. Such prices – $970 – were observed in 2015, 2020, 2022 and 2023, recalls Pereslavsky. “In my opinion, the sideways trend will continue and prices will remain in the range of $820-1083 per troy ounce,” the expert believes. “The competition between palladium and platinum will also continue, and I think that their prices will not vary by more than 10-15% in the long term.”

    Demand for palladium is expected to remain relatively unchanged in 2024, according to Norilsk Nickel's metals market review. “We expect the 1:1 substitution ratio for platinum and palladium achieved in recent years in major applications, as well as ongoing efforts to ensure interchangeability of platinum group metals in high-growth high-tech industries, to ensure long-term fundamental price parity between the two metals,” the analysts said “Nornickel”.

     

    “Norilsk Nickel, compared to other producers, clearly feels fine due to its fundamentally different product line of metals, and the current weakening of the global platinum and palladium market is not critical for it,” Khazanov believes. 

    Fluctuations in prices for platinum group metals are not scary for Norilsk Nickel, agrees Suverov from Arikapital. “Norilsk Nickel is a company with very low metal production costs,” he says. “In addition, Norilsk Nickel has a fairly good basket of metals, which allows it to adapt to the market situation, reducing the production of some metals and increasing the production of others, while maintaining high margins.”

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    Wrestling for the price tag

    Producers of palladium and platinum intend to take a number of steps to keep prices from falling further, and ideally, to translate them into growth.

     CEO of South African PGM producer Northam Platinum Holdings Ltd. Paul Dunn told Bloomberg that he doesn't think palladium prices will recover unless producers continue to cut supplies. Dunn said that due to falling prices, his company and its larger  partners Anglo American Platinum Ltd., Sibanye Stillwater Ltd. and Impala Platinum Holdings Ltd. (Implats) are cutting costs and reducing production development plans. Implats and Sibanye have shelved plans to expand high-cost projects in North America. “Obviously this will cause some difficulties, but we believe that it is necessary,” the top manager said. 

     

    Based on the results of 2023, Norilsk Nickel reduced palladium production by 4% compared to the previous year, to 2.692 million ounces, but increased platinum production by 2%, to 664,000 ounces. “Such multidirectional dynamics were associated with a change in the ratio of platinum group metals in the structure of processed raw materials,” the company reported. — In 2024, Norilsk Nickel plans to reduce production by 9-15%: palladium – to 2.296-2.451 million ounces and platinum – to 567,000-605,000. 

    Major analyst firms, judging by the content of their forecasts, do not have much faith in producers’ willingness to reduce their output of platinum group metals. JM analysts believe that the deficit in the palladium market will decrease by 65% ​​in 2024 compared to 2023, from 1 million ounces to about 360,000 ounces. Supply is expected to increase from 9.354 million ounces in 2023 to 9.373 million ounces in 2024, while demand is expected to decline from 10.371 million ounces to 9.731 million. JM estimates that palladium use in cars will fall to an eight-year low of 8.1 million ounces in 2024 due to a decline in the production of cars with internal combustion engines.

    Platinum supply, according to JM, will decrease from 7.091 million ounces in 2023 to 7.016 million ounces in 2024. Demand will increase from 7.609 million ounces to 7.614 million ounces. “In 2024, the platinum market deficit will again exceed 0.5 million ounces,” the review says.

    A slightly different assessment of the platinum market is contained in the Q1 2024 review of the World Platinum Investment Council (WPIC), which estimates that the shortage of this metal will decrease from 851,000 ounces last year to 476,000 ounces this year. WPIC forecasts that platinum supply will decline from 7.172 million ounces in 2023 to 7.111 million ounces in 2024,  and demand will fall from 8.023 million ounces to 7.568 million. Demand from the automotive industry is expected to be stable at 3.269 million ounces, demand for platinum jewelry will increase by 6% to 1.978 million ounces, but demand from other industries, in in particular, glass and chemicals, will decrease by 15%, to 2.242 million ounces, WPIC believes.

     

    Palladium demand is expected to remain relatively flat in 2024, according to Norilsk Nickel’s metal market review. Norilsk Nickel experts believe that the palladium deficit in 2024 will be 0.9 million ounces. 

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