The coronavirus-induced smell of clean air could boost platinum

South Africans may not have enjoyed their personal liberty becoming subject to government diktat, but at least the air smells sweeter.One consequence of the Covid-19 pandemic lockdown has been a reduction in national pollution. Nitrogen dioxide levels fell 23% on the Highveld between 27 March and 20 April, according to satellite imaging studies produced by the Pretoria-based research institute the CSIR.

The phenomena of reduced emissions have been a global consequence of less cars on the road, less factories, and less air travel. “This cleaner air should not just be temporary,” said Sadiq Khan, mayor of London, in an article by the UK’s Guardian. “So once the current emergency has passed and we start to recover, our challenge will be to eradicate air pollution permanently,” he said.

This is much the hope of SA’s platinum group metals (PGM) industry which, as with other industries, has been thrown into a fug by the onset of the Covid-19 disease. There’s been little in the way of agreement between PGM research houses on where the industry may land in the months and years after the pandemic’s arrival.

Days before the World Platinum Investment Council (WPIC) forecast a mild platinum surplus of only 247 000 ounces, a rival house, SFA Oxford, said platinum would run a surplus of 1.3m ounces this year – a difference of opinion of some million ounces. SFA Oxford also raised the prospect of platinum trading below $600 per ounce – a 25% decline compared with its current price ($885 an ounce), suggesting there is deep downside risk in the metal’s demand.

Johnson Matthey, a PGM semi-fabricator and market commentator, didn’t forecast on volumes or price but said the Covid-19 pandemic had hit demand and PGM supply equally hard and therefore expected the market to remain relatively balanced for PGMs including palladium – which was in a huge deficit last year.

The upshot of all this is that while getting production back on the rails is a matter of time, there’s no knowing how quickly demand will recover. Just on platinum jewellery sales alone, consumers are likely to be cautious. “If you have a huge economic impact, it’s all about survival,” said Trevor Raymond, director of research at the WPIC.

In the end, the future of PGMs turns largely on the extent to which it can participate in a world after Covid-19 where values-driven public policy puts greater emphasis on decarbonisation. It’s no small irony that set against the current Covid-19 death toll of some 345 000 globally, some 7m people die from the effects of air pollution each year, according to the World Health Organization.

“Will this be something that, after the eventual economic recovery, we dismiss as a nice moment as we get back to life as usual?” asked SFA Oxford of the improved environment in the UK during its lockdown.

It believes greater commitment to the development of hydrogen-powered transport, for instance, in which hydrogen is electrolysed from water to produce electricity, will serve the interests of the PGM sector and help decarbonise the environment.

“Overall platinum demand in all electrolyser and fuel cell technologies is estimated to be around 60 000 ounces in 2020, but could reach significant levels compared to other areas of industrial demand, approaching 500 000 ounces by 2030,” saidJenny Watts, a researcher for SFA Oxford in a May paper.

“The hydrogen economy is definitely gaining momentum,” says Phoevos Pouroulis, CEO of Tharisa, a Johannesburg-listed company that mines chrome and PGMs. “It is still a blue-sky industry but we’re in this for the long term.”

In a shorter timeframe, there’s also the question of when substitution of the expensive palladium with the cheaper platinum will occur in the autocatalyst, which limits emissions from the internal combustion engine. “It hasn’t happened yet, especially in the gasoline engine,” says Pouroulis.

“In China, new regulations may enable car companies to implement catalyst changes more quickly,” said Johnson Matthey in its report. “This could allow some domestic automakers to thrift palladium and rhodium, and to accelerate platinum substitution programmes.”

Governments may tighten emissions legislation for combustion engines faster after Covid-19 as has happened in China. There may be other shifts not considered before.Anecdotal evidence from China is that there’s a resurgence in the personal car in preference to public transport owing to coronavirus transmission risks.

This may well be temporary; not that that has dimmed the enthusiasm of Mike Jones, president and CEO of Platinum Group Metals, which is in a joint venture with Impala Platinum and HIC Holdings on a palladium project in Limpopo.Car purchases were greater in April this year than in April 2019, he said in a 15 May conference call with investors. “We think the car is going to have a big resurgence.” 

This article originally appeared in the 4 June edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

ZAR/USD
17.12
(+0.05)
ZAR/GBP
21.53
(-0.05)
ZAR/EUR
19.34
(+0.02)
ZAR/AUD
11.90
(+0.05)
ZAR/JPY
0.16
(+0.04)
Gold
1795.03
(+0.04)
Silver
18.30
(+0.24)
Platinum
840.51
(+0.59)
Brent Crude
42.97
(-0.05)
Palladium
1917.00
(+0.52)
All Share
55243.80
(+0.72)
Top 40
50922.32
(+0.83)
Financial 15
10086.99
(-0.47)
Industrial 25
76855.87
(+0.55)
Resource 10
52017.34
(+1.71)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 1736 votes
I am taking a hit, but should be able to recover in the next year
23% - 2272 votes
My finances have been devastated
34% - 3402 votes
It's still too early to know what the full effect will be
25% - 2460 votes
Vote