Platinum miners betting on fuel cell vehicles to boost demand for the precious metal and lift moribund prices are in danger of having their hopes dashed, at least in the medium term – electric and hybrid cars are taking a bigger share of the market.
The world’s three largest platinum producers – Anglo American Platinum (Amplats), Impala Platinum and Lonmin – are all investing in projects related to fuel cell technologies, which generate electricity that can power vehicles by combining hydrogen and oxygen over a platinum catalyst.
But analysts doubt fuel cell vehicles will rival the growth of their electric counterparts, mostly because battery recharging stations are less costly and already more widespread than hydrogen refuelling stations.
“As out of the two new technologies only fuel cells use platinum, I guess the miners think they have no choice,” the Macquarie analyst Matthew Turner said. “But people are buying electric cars ... and that’s not the case for fuel cells.”
Amplats, which has invested about US$35 million in the last five years in companies developing new uses for platinum, mostly through fuel cell technology, is mindful of the stakes.
“I don’t want Anglo American Platinum, or any of our partners or customers, to be a Kodak,” the Amplats chief executive Chris Griffith said last week, referring to the once mighty photography pioneer that was too slow to transition to digital photography.
“If fuel cells are not adopted, we may have no auto market for platinum by 2050.”
A car industry dominated by batteries will reduce platinum demand to 2.5 million ounces in 2050 from 3.4 million ounces this year. But if fuel cell cars dominate the alternative vehicle segment in Europe, platinum demand is estimated to rise to 6.6 million ounces in 2050, Mr Griffith said.
Hybrid and electric vehicles made up about 1.8 per cent of all new car sales in the European Union in 2013, twice as high as the previous two years, according to the latest figures available from the International Council of Clean Transportation.
Fuel cell vehicles, on the other hand, are estimated to make up just 0.015 per cent of global light vehicle production in 2025, according to Lonmin. About 60 million cars are produced globally each year.
“I don’t believe fuel cells are going to be a positive part of the [car] story for at least the next five years,” the Liberum analyst Adam Collins said. “The costs of compacting the hydrogen and the refuelling centres – each costs more than €1 million – are just too high.” Auto catalysts – which make traditional cars more environmentally friendly – remain the major source of demand for platinum, accounting for about 3.4 million ounces a year, or 40 per cent of total consumption, with diesel catalysts using the largest amounts of platinum.
Tighter European regulation of air pollution benefited platinum producers and catalyst makers over the past two decades. But recent research shows that while diesel cars emit less carbon, they produce higher levels of other pollutants such as nitrogen oxides. The data provider LMC Automotives forecasts that diesel vehicles’ market share in Europe will drop to about 39 per cent to 44 per cent in 2022 from a peak of 56 per cent in 2011.
At the same time, car makers are reducing the platinum content in vehicles to cut costs. Platinum prices fell to six-year lows of $1,083 an ounce in March, hit by slowing demand growth and an overhang of stocks.
Fuel cells vehicles, if they do take off, will certainly be a boon for battered platinum producers. While electric cars do not need catalysts and hybrid models require small amounts, fuel-cell powered cars use between five and 10 times more platinum than a diesel catalytic converter, which typically uses three to seven grams.
“The next big shift for platinum group metals is fuel cells, I’m confident of that,” Mr Griffith said, adding: “We need to collaborate to drive this industry-transforming technology.” Meanwhile, investors are showing an appetite for palladium. Holdings of the metal in exchange-traded products increased to a three-month high amid brighter economic prospects in the US.
Volumes traded on the New York Mercantile Exchange were 61 per cent higher than the 100-day average last Thursday.
Palladium, mainly used in emissions control systems of petrol-driven vehicles, is drawing support from recent signs of stronger growth in the US, the world’s largest economy. Use of the metal by vehicle makers is expected to climb to a record this year after three years of supply shortages.
US car makers reported the best May sales in a decade. Car sales hit 17.7 million last month on a seasonally adjusted annualised basis, according to Autodata Corp, the highest since summer 2005. Industry sales are expected to top 17 million vehicles this year, besting the 16.9 million reported in 2005.
“The outlook for car sales in the US has been quite good, and this translates through to the outlook for palladium consumption,” said Jonathan Butler, a precious-metals strategist at Mitsubishi. The metal is taking its lead from US economic data, he said.
Palladium has rebounded 8.7 per cent since reaching a 13-month low of $723 an ounce on March 30.
Demand for palladium from the makers of car catalysts is anticipated to rise to a record this year, with the industry’s usage climbing 1.4 per cent to 7.46 million ounces, said Johnson Matthey, a British multinational speciality chemicals and sustainable technologies company.
“Over the long term, palladium is going to do a lot better than gold because of the possibility of very good car sales,” said George Gero, a precious metals strategist at RBC Capital Markets in New York.
Excess demand will keep prices afloat in the short term
The short-term prospects for platinum and palladium look positive, analysts say.
Demand for platinum and palladium outstripped supply for the third consecutive year in 2014, according to data from Johnson Matthey, the world’s largest refiner of platinum group metals.
Again, the global platinum market ended the first quarter of this year in deficit, with demand outstripping supply by 160,000 ounces. Demand was up 3.9 per cent from the previous quarter at 1.995 million ounces.
The combined prospect of a strike threat in South Africa and deficit in the palladium and platinum is expected to boost prices.
Pradeep Unni, the head of trading and research at Richcomm Global Services in Dubai, said he expects platinum prices to comfortably trade above US$1,200 an ounce and palladium to trade above $890 an ounce.
Capital Economics is a bit more positive.
“We believe that the platinum market is already quite tight after last year’s strikes and any disruption to production should prompt a price rally. We believe that platinum and palladium prices will recover in the second half of the year and hold to our end-year price forecasts of $1,400 and $900 per ounce,” Capital Economics said.
Platinum and palladium yesterday were trading at $1,112.25 and $766.90, respectively.
* The National staff
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