Platinum group metals (PGMs), which include well-known metals such as platinum and palladium, and the lesser-known metals rhodium, ruthenium and iridium, enjoyed a stellar run at the start of the decade. Demand for PGMs surged, fueled by expanding industrial applications and heightened investor interest. However, fortunes have changed quite significantly over the past few years.
The profitability of most PGM producers has eroded as the basket price (or the weighted average price of the company’s PGM output) has plunged to levels near or below breakeven for many operators. Fortunately for those with more platinum-heavy assets, there has been greater price stability in recent years, underpinned by structural supply deficits.
Source: Johnson Matthey
However, palladium and rhodium have seen their prices plummet as the growing adoption of electric vehicles (EVs) has significantly changed the demand-side dynamics for PGMs. Palladium prices, which reached $2,645 per ounce in March 2022, have averaged just under the $1,000 level this year. Rhodium prices are off by around 85% since their dazzling highs of over $28,000 in 2021.
This is a direct result of gasoline-powered internal combustion engine (ICE) vehicles losing market share. These vehicles use plenty of palladium in their catalytic converters, which help to reduce carbon emissions from vehicles. Palladium’s and Rhodium’s loss has been copper’s gain, as copper is required in greater quantities in electric vehicles.
These structural changes have cast a bleak outlook for PGM prices, but there may be signs of hope. Over the past year, global sales of electric vehicles have lost momentum, whilst hybrid vehicles (which still require PGMs) have seen increased demand. Indeed, some automakers that have misjudged the speed of the move to EVs have been forced to make cuts and close factories.
Source: Goldman Sachs
Goldman Sachs analysts have cited the rising EV capital costs, election-driven policy uncertainty, and inadequate charging infrastructure as key reasons behind this waning demand. As governments cut electric vehicle subsidies, the comparative appeal of hybrids or traditional gasoline-engine vehicles will continue to grow.
The improving demand outlook seems to have helped PGM prices find a bottom. All recent drops have been bought up in rapid succession. From a supply perspective, there may also be issues on the horizon…
