More than 40 per cent of the platinum mined today is used in the automotive industry, predominately in catalytic convertors for gas- and diesel-powered vehicles. So how will the transition to electric vehicles affect demand for this precious metal?
Supply:
South Africa is the largest producer of platinum (70 per cent of global production) with an annual output of 4.5 million troy ounces, followed by Russia (12 per cent), Zimbabwe (8 per cent), Canada (4 per cent) and the United States (2 per cent). Globally, the top five countries make up 98 per cent of platinum production. Canada’s PGM (platinum group metals, which also includes palladium) production ranges from 600,000 to 1,000,000 troy ounces annually with most of it coming from Ontario, Quebec and Manitoba.
Mining accounts for 72 per cent of the world’s annual supply, (190 metric tonnes or six million troy ounces mined each year) while 28 per cent comes from the recycling of products such as autocatalytic converters, old jewellery and electrical scrap.
Demand:
Platinum is used primarily in the automotive industry, in jewellery, as a catalyst in the chemical industry, in glass manufacturing, electronics, dental and biomedical applications, and for pollution control.
Pricing:
The price of platinum peaked in 2008 at US$2,300 per ounce. In the past five years the metal has traded between US$600 and US$1,300, spiking briefly when Russia invaded Ukraine before falling back to its current level of just above US$900.
Platinum deficit:
The World Platinum Investment Council (WPIC) forecasts a platinum deficit of nearly one million ounces for 2023 amid stronger demand from the investment sector and constrained supply from South Africa. Looking out to 2027, the WPIC predicts continued demand growth caused by further substitution of platinum for palladium in the automotive sector as well as increased use in glass manufacturing, leading to deeper yearly deficits. It adds that, as at the end of last year, platinum above-ground stocks were estimated to be almost five million ounces, which equates to 39 weeks of yearly demand, most of which is in China.
Both platinum and palladium are used in auto production and as the price of each moves past the other we see shifts in demand. Palladium mine supply is a by-product of nickel mines in Russia and of platinum mines in South Africa, with Russia producing more than 40 per cent of global palladium supply. Palladium is usable in gasoline-powered vehicles but diesel vehicles require platinum in the catalytic converters. Higher palladium prices are causing a shift back to platinum, which in turn is causing palladium prices to fall.
The EV switch:
In 2022, 10.5 million battery and hybrid electric vehicles were sold globally. The international energy agency (IEA) forecasts that EVs will account for 60 per cent of vehicles sold globally by 2030. Hybrid vehicles are expected to represent 10 million units each year by 2030. For the period 2010 through 2020, there were 70 million passenger cars sold annually and 81 million vehicles total.
A switch of that magnitude to EVs would reduce automotive demand for platinum by 45 to 50 per cent (total EVs less hybrids) or a 20-per-cent demand reduction overall.
New demand - hydrogen fuel cells:
The Hydrogen Council sees global deployment of fuel cell electric vehicles (FCEVs) - which are those powered by hydrogen - topping 13 million units by 2030. Hydrogen fuel cells require 70 to 80 grams of platinum, whereas the average internal combustion engine (ICE) vehicle contains three to seven grams of platinum. The cells produce electricity by combining hydrogen (the fuel) and oxygen over a catalyst like platinum.
By 2030, if we see the growth rates expected by a number of forecasters, we would expect to see 600,000 to one million hydrogen-fueled vehicles shipped annually. That volume of FCEVs would consume the equivalent platinum of 20 million ICE vehicles or 25 per cent of current demand, thereby offsetting the drop in platinum used in ICE vehicles by half. Other demand for platinum going forward includes the production of green hydrogen for manufacturing, shipping and aviation.
The shift to EVs from internal combustion engines will cause a reduction in demand for platinum in the automotive sector over the next decade. Some of that demand will be made up with hydrogen fuel cells and new uses of green hydrogen.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.