The battery on Henk de Hoop’s hybrid battery electric vehicle (EV) barely gets beyond the city limits before it needs a recharge. Its paltry 11 miles of life is the kind of performance that gives the EV mobility drive train a bad name.
“It’s pretty useless,” acknowledges De Hoop, CEO of Oxford SFA, a metal industry research house. But technology is changing fast. “The battery challenges that everyone sees are slowly disappearing — and not even slowly.”
Look no further than Chinese technology firm CATL, which recently unveiled plans to mass produce an EV battery with 1,000 miles in reach needing 10-15 minutes to recharge to 80%.
CATL is also working on a sodium car battery. While not as effective as the dominant lithium-based EV technology used at present, it may nonetheless find a niche in the consumer urban market, says De Hoop. Importantly, the sodium battery will help ease constraints on critical input minerals such as lithium, which has the world’s decarbonisation push in a headlock. German automaker Volkswagen has committed €180bn to funding battery EVs (BEVs).
While that is great news for signatories to the Paris Agreement, it’s dismal for South Africa’s platinum group metals (PGM) industry, which relies on the production of internal combustion engine cars fitted with autocatalysts, the technology EVs are intended to replace in some cities by 2030. According to the World Platinum Investment Council, South Africa supplied 3.98-million ounces of 5.58-million ounces in global refined PGM production last year. Of this, 2.8-million ounces was bought by automakers for autocatalysts.
Compounding the long-term demand risk posed by BEVs, car manufacturers are also feeling the pinch in the short term. Car sales are expected to flatline this year, owing to high inflation and signs that microprocessor chip supply backups are not yet out of the system.
For followers of JSE-listed companies that produce PGMs, such as Anglo American Platinum, Impala Platinum and Sibanye-Stillwater, there are also signs that the boom in minor PGMs, which boosted company profits, is over. Prices haven’t just corrected, they’ve crashed. Rhodium, for instance, is down about 70% and might sink further given its price volatility in the past, says De Hoop.
Minor PGM markets are gossamer thin. In the case of rhodium, about 80% of total global supply is committed in long-term contracts. So when original equipment manufacturer (OEM) China Jushi said earlier this year it was returning R8bn worth of the metal — about 50,000oz — there was major price pain.
There’s quite a long runway for the combustion engine and PGMs
— Tim Ingle
Given these short- and long-term stresses, the PGM sector is at something of a crossroads: “a decade of deciders”, as De Hoop terms it. Yet as BEV technology speeds up, so do the challenges of catering to the supply chain — a tension giving PGM producers time to respond, and not a small degree of hope.
For starters, EV supply is threatened more perilously by input constraints than first forecast. The lab-bound propeller heads may be engineering out the reservations consumers have about BEV technology, but this is balanced by signs that mineral supply deficits are steeper than feared.
Two-thirds of forecast lithium demand before 2030 is from mines that haven’t been built yet. While it takes two to three years to build a gigafactory, it takes at least twice as long to build a new mine. Lithium is abundant; SFA (Oxford) cites 200 projects in circulation today compared with 20 previously, but they are also tough to finance, difficult to permit and rely on advances in mining extraction untested at scale.
Respondents to a KPMG survey believed the adoption of EVs would be 40% of the total car market by 2030. That estimate in 2021 shrank to 20%. “There’s quite a long runway for the combustion engine and PGMs,” says Tim Ingle, senior vice-president of precious metals services at BASF, a chemical multinational based in Germany.
To get from 10-million units to 40-million units in production between now and 2030 is “extremely challenging” for metals, he says. Consequently, the proposed 2030 ban on the internal combustion engine in some urban areas has been pushed out five years. Moreover, it’s mostly Europe’s main capitals that have proposed such bans. “If 2030 is the BEV year, then it is only true in Europe, and Europe is not the place where the most cars are being bought,” says Bernhard Fuchs, senior vice-president of precious metals management at Umicore, a metal technology and recycling company.
Fuchs also believes certain unintended consequences of increased BEV usage will flow into energy markets. With increased BEV usage, there is likely to be additional strain on electricity prices and a consequent decline in the oil price. “We will have to see how consumers react to that,” Fuchs says.
A slower ramp-up in BEV consumption will be a relief to PGM producers, but it is also a clarion call for the more rapid development of the hydrogen economy PGMs supply through the production of electrolysers. Metals such as iridium come into play in this market and, potentially, ruthenium. Arcane elements, perhaps, but it’s worth remembering the important role they potentially play in generating money for investors.
The tiny 72,000oz deficit in rhodium during 2021 sent prices for the metal to $30,000/oz from less than $4,000/oz a year earlier. For Amplats, that price improvement saw rhodium comprise 44% of half-year revenue in 2021, even though the metal is no more than 10% of total PGM production. The company subsequently paid out all of its earnings, equal to R175 a share in the interim dividend, mostly down to rhodium.
For now, however, the market doesn’t appear to be factoring in the high-growth potential of hydrogen technology on PGM demand. “We accept the potential, but it’s difficult to quantify,” says JPMorgan analyst Catherine Cunningham. The discussion around hydrogen is “taking up significant airtime, but it exists only as upside”.
Rather, equity analysts are bearish to neutral on PGMs, largely owing to palladium. Previously the preferred metal in autocatalysts, its price is driving OEMs to platinum as an alternative. There’s some talk of pent-up vehicle demand, but Cunningham is sceptical while she estimates BEV penetration of 40%-50% in Europe and China by 2030.
A quick glance at share graphs seems to support this analysis. On a 12-month basis, Amplats is 49% weaker. Implats and Sibanye-Stillwater are 22% and 34% lower respectively. Other microeconomic factors are also at work, namely cost inflation and energy supply risk.
Eskom power curtailments and supply uncertainty hurt everyone, but the refineries of PGM producers more than most. Amplats thinks production will shrink 5% this year, assuming power curtailments the equivalent of stage 2 to stage 4 load-shedding. Sibanye-Stillwater says output could be reduced 15%, matching last year’s decline.
SBG Securities analyst Adrian Hammond says primary PGM production would have to increase a fifth over current levels to offset the impact of inflation. Only Northam Platinum is in a position to achieve this, by dint of its long-standing expansion programme. It expects to produce about 600,000oz this year as it climbs towards becoming a million-ounce-a-year producer of metals.
On the market, Hammond is equally soothing. “We’re constructive,” he says. “The fundamentals have been playing out exactly as we would expect them to. OEMs, which brought metal forward two years in 2021, have removed themselves from the market, which explains the price declines in PGMs. But it doesn’t mean they have been replaced by speculators who are bearish on the market. Ultimately, the metals are tight,” he says.
This had led to market disruption and it will now take time for metals “to find new parts”.
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