If you had told me in early 2020 that I wouldn’t travel for work or pleasure for the next 12-18 months, I would have said you were crazy. And equally so had anyone suggested that rhodium would spike toward the $30,000 per ounce marker. As of the close of the first quarter of 2021, the platinum group metals (PGM) continued to break records. Will the prices last and how did we get here?
No longer normal
In normal times (pre-COVID-19 pandemic), we were able to look at global economic trends, mining capacity and the role of recycling to reasonably predict and anticipate metal pricing in the coming year. While we technically could say our prediction formula fundamentals are by in large the same, COVID-19 has thrown some real curveballs at our models. By the end of 2019, the biggest impact on the PGM markets looked to be coming from China and India as they were moving toward stricter emissions standards.
Living in a world that at times has seemed stranger than fiction, traditional predictive models couldn’t possibly take into account the daily twists and turns offered up by the global pandemic and changes in the political landscape. So, in what has become a predictably unpredictable time, let’s examine the things we know.
For starters China, the world’s most populated country, moved ahead with a significant strengthening of emissions standards. This in and of itself had a tremendous impact on demand for PGM. The world’s most populated country is moving from near-nonexistent emissions standards to almost matching those of most western nations. The transition has placed lasting and long-term upward pressure PGM that historically are in a deficit position.
Even in the good old prepandemic era of 2019, platinum, palladium and rhodium were running in physical deficits. Projected demand consistently outpaced the mining and recycling capacity available to meet it. In the last year, while overall global catalyst needs from automotive and general industry shrank, so did the ability to produce the metals. This resulted in a perfect storm that has driven metal prices to record highs in the first quarter of 2021. (Editor’s note: In the second quarter of 2021, rhodium pricing declined to just roughly $19,000 per ounce as of early July, while platinum was near $1,100 per ounce as of early July and palladium prices peaked in early May near $3,000 per ounce before declining to the $2,800 per ounce level as of early July.)
While the West was still struggling to get past the day-to-day effects of COVID-19 at the start of this year, China was well ahead of the rest of the world in getting back to “the new normal.” Where the pandemic reduced automotive demand when the country was in lockdown, Chinese auto manufactures are exceeding projections for new passenger vehicles. In a prepandemic world, public transit was the norm. In a post-COVID China, more individuals have a greater desire for access to personal transportation rather than risking public transit. COVID was cited for a 6 percent decline for the automotive sector in China in 2020, but the country appeared to be on track for an 8 percent recovery in the first quarter of 2021, according to a Feb. 23 article in The Economist.
While demand for PGM increased in the latter half of 2020 from China, Western nations had not seen any real economic recovery from ongoing lockdowns as of that time. Additional waves of COVID-19 continue to threaten what promises to be an economic recovery in countries where vaccination efforts have not been as effective. While stock markets have remained robust, retail auto sales in the West are down. In the U.S., new vehicle sales were down 15 percent, according to a New York Times article from Jan. 5, the lowest level since 2012, when the U.S. auto industry was still recovering from the financial crisis that sent General Motors and Chrysler seeking government assistance and bankruptcy protection. Further, new vehicle sales in combined European markets are estimated to be down 24.5 percent for 2020, according to Forbes, which cites Schmidt Automotive Research for the figure.
If this were any normal time, decreased auto sales would have tanked the PGM markets. However, in COVID-19 times, it meant diminished production capacity from the world’s major mining producers and considerably fewer end-of-life vehicles for the recycling industry to process.
In South Africa, Johnson Matthey notes in its “PGM market report” released in May of this year that COVID-19 and other production-related issues reduced mining output by 16 percent in 2020. When we consider that nearly two-thirds of all the world’s PGM come from the region, it is obvious why metal prices continued their upward trajectory.
COVID was not the only cause of production slowdowns, though it was the major contributing factor. Complying with social distancing and issues with migrant workers returning to work made it very challenging for most operations to return to 100 percent. In fact, it was not until the latter half of 2020 that South African mining production got back on track.
Another factor contributing to the material shortage was the secondary recycling sources of PGM. With new car sales declining globally, this had a natural effect on available recycled materials. It can be assumed that when a new vehicle is sold, it will translate into a vehicle being recycled—while it is not precisely a 1 to 1 ratio, it is close. That said, scrap material entering into the recycling stream was significantly reduced, further contributing to precious metal shortfalls available to meet future market demands.
Now that we have a broad idea of how we got to record high prices, where do we go from here? PGM seem to be on track to hold value if not continue to increase somewhat in 2021. At least that is the overwhelming consensus from all the experts. For those of us in the recycling industry, we should always take predictions of markets holding or going sideways with a very large grain of salt. From my perspective as a recycler, it is best to turn recycled converters as quickly as possible in a given market. This way any margins built into the acquisition of the core will be assured in the event of a significant downturn.
For now, while PGM prices have broken records and then slightly dipped before gaining again, it looks like 2021 will be relatively stable. As the world gets back to some kind of normal with mass vaccinations, the mining and recycling industries will get back to regular production. While more material will be available, demands technically should rise too. Only time will tell how quickly the supply side will get back to a normal position. If I am reading the tea leaves correctly, the back half of 2021 also should keep metal prices elevated given a slow march back to regular production and consumption.
From the perspective of recycled catalytic converters, the available material has become increasingly limited. What is being recycled is highly sought after either as a core already removed from an end-of-life vehicle or on that same vehicle coming across a scale or auction. Catalytic converter core buyers have sprung up out of nowhere, catching the wave of metal pricing. Many do not fully comprehend the market impact on the core and possible purchasing mistakes. All the Johnny-Come-Lately sees is potential fast profit as the market upswing has erased most purchasing mistakes. Even with slight corrections, at current market levels, mistakes can be costly.
The overly competitive converter market also has put pressure on profit margins. New entrants into the market typically have limited information and often take greater risks on the recycled value of the core just to get a piece of the action. Long-time auto and scrap recyclers are forced to pay premiums or miss out entirely on the material. Once again, I can’t say it enough, buy and sell converters as quickly as possible in the same market to ensure the slim margins now available.
To prosper with recycled autocatalysts in the current market conditions, it is vital to have as much reliable core information as possible coupled with a buyer that can assist with rapidly changing market conditions. Further for those of you who are using toll refining services for your converter material, the biggest asset you will find is having your material turn time as short as possible to react to markets quickly.
To wrap up where we are headed: Hold on; it’s going to be a wild ride as the West begins its way back to the “new normal.” 2021 will be full of ups and downs and a lot of opportunities for those who have the right knowledge.
Cliff Hope is senior account manager at PMR Inc. He can be contacted at 855-901-5050, ext.208, or by email at email@example.com.