No matter how EVs sliced and diced, PGMs face demand challenge

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THE view of investment banks on the likely impact of electric vehicles (EVs) is just a question of degree. EVs talk so sensibly to society’s broad concerns, as contained in the Paris Agreement on climate change for instance, that demand for the metals required for their fabrication is likely to be anything from robust to stratospheric.

A report by JP Morgan Cazenove, however, suggests some temperance wouldn’t go amiss, especially regarding the impact EVs will have on lithium and cobalt demand – relatively scarce minerals that go into the manufacture of the all-important car batteries.

“We temper exuberance for lithium and cobalt prices, but are more optimistic on the outlook for copper and nickel, with copper demand forecast to grow by 845,000 tonnes a year by 2025, offsetting structural decline in Chinese demand,” the bank’s analysts said last month.

“We forecast rapid growth of EVs, but wide regional dispersion tempers metals demand impact,” they said. “Specifically, China is forecast to lift its EV share from 2.3% in 2017 to 12% by 2025, but its propensity for smaller battery packs with lower metals loadings, is likely to mean its rapid EV growth has a lower correlation to metals demand growth than non-China OEM [original equipment manufacturers],” it said.

Where there is broader agreement, however, is on the likely effect on the platinum group metals (PGM) market. Platinum, palladium and rhodium are used in the manufacture of autocatalysts that help remove toxic emissions produced by ‘traditional’ petroleum and diesel engines. If the EV trend gains enough momentum, it could punch a major hole in PGM demand as they are used in autocatalysis.

This would be very bad news on some of the companies that investors are backing on a value basis especially as the current PGM basket price, even in rands, is so poor. Northam Platinum, for instance, is favoured as one of the go-to PGM companies for when the PGM price revives. Sibanye-Stillwater, which has bought into the PGM market at its cyclical low (it claims), is another.

“Platinum will fall victim to the secular trend as the consumer shifts away from diesel cars, in our view, and we believe Anglo Platinum’s expensive valuation is therefore at risk of a structural de-rating,” said JP Morgan Cazenove. Anglo Platinum, listed in Johannesburg, is controlled by Anglo American.

Sizeable primary metal production cuts are on the horizon in South Africa with Sibanye-Stillwater’s takeover of Lonmin, if approved, likely to see the latter cut back significantly. Production cuts are also likely at Impala Platinum. Bank of American Merrill Lynch wrote recently that these dynamics would create a major supply deficit as some 700,000 ounces of expensive PGMs output would leave the market.

Whilst the price of platinum is naturally affected by a range of factors, not just one, the supply risk doesn’t seem yet to be factored in to platinum pricing which was at a 12-month low of $884/oz at the time of writing. Might it be regulations against diesel cars – such as in Germany where cutbacks have been legislated – are having the greater influence over the PGM market than the risk of less production?

“To date there has been limited impact on platinum demand from the diesel regulations as commercial vehicles and growth in other regions have provided an offset to the drop in demand from European passenger cars,” said RMB Morgan Stanley, reporting on market intelligence picked up at Platinum Week in London during May.

“However, in 2018, automakers cutting diesel car output is expected to start to have an impact on platinum demand,” it added. According to Johnson Matthey, a market consultant and semi-fabricator of PGMs in the UK, there will be a 2% cut in diesel car output this year.

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