Precious metals: managing the markets in a changing world
The metals we call ‘precious’ were originally given that title based on their beauty and rarity. They were shiny, and people have always liked shiny. These metals became highly sought after, and being difficult to find they became very valuable.
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They are still considered very valuable for their appearance, but their expanding technological uses and increasing scarcity mean these elements will continue to be treasured for even greater reasons.
To get an idea of the rarity, consider that all the platinum ever mined in human history would fit inside a four-bedroom house. That may sound impossible, but remember that one cubic metre of platinum weighs over 21 metric tons (MT). A 20-litre bucket of pure platinum would weigh approximately 430 kg.
This article will discuss platinum group metals supply, demand, and recycling; examine what is happening within the world of platinum group metals (PGM) and the related effects on the market; and review how precious metal users and suppliers can best coordinate for mutual success.
PGM demand over the last century has, of course, been growing steadily. Platinum demand is estimated between 200 and 250 MT per year, and annual palladium demand now exceeds 300 MT. Approximately 90% of all palladium and rhodium above ground on planet Earth is riding around in the catalytic convertors of automobiles. Therefore, since the 1970s, the main ‘driver’ (sorry for the pun) for PGM has been the automobile market.
In a nutshell, roughly 30% of platinum and 80% of palladium demand today is for catalytic convertors; approximately 30% of platinum and 15% of palladium goes to industry (that means petroleum and petrochemical refining, chemical production, fibreglass); and the rest falls under jewellery and investment.
In terms of supply, South Africa produces over 70% of platinum and almost 40% of palladium annually. Russia accounts for about 15% of platinum production and roughly 50% of palladium production annually. The London Platinum and Palladium Market (LPPM) announced on 8 April of this year that they had suspended the two Russian refiners on their ‘Good Delivery’ list. These suspension announcements caused a tightening of the physical availability of PGM and some disruption for automotive and industrial users.
The recycling picture is mixed; while the industry deserves a pat on the back for the improvement in ounces recycled (recycling met only 19% of the demand in 2010 but reached 28% in 2020), this is almost entirely due to autocatalyst being recaptured in emerging markets.
In short, we are seeing various market forces pulling in all directions at once: the COVID pandemic, the chip shortage, the logistics mess around the globe, labour shortages, Brexit, and Russia’s invasion of Ukraine. When we overlay the supply, recycling, and demand (see Figure 1), we see that the total platinum supply will remain in surplus of demand by about 200,000 ounces troy or so for the next several years. Palladium, on the other hand, is in deficit by over 1 million ounces troy. It should be noted that these estimates do not take into account the last few months of world events. Expectations within the precious metals industry are that PGM prices will experience sustained volatility, lease rates will remain elevated for the short term, and the aforementioned restrictions will continue with regard to the availability of physical metal.
The sheer amount of PGM that the world demands every year makes mining crucial, and the industry is focused on improving existing methods and controls. There is not much that can be done about political hot spots or the deteriorating ore quality, but we can protect workers as the mines get deeper, examine and shrink the carbon footprint, and reduce the cost of refining. Thankfully there are a bunch of extremely smart people working on just that.
Now and for the foreseeable future, PGM will remain at the cutting edge of providing answers to some of humanity’s most pressing needs:
• Conservation: automotive catalysts and industrial filtration units that reduce emissions
• Energy: fuel cells, gasoline, jet fuels
• World health: treatments, medical devices, and pharmaceutical products that contain PGM or are made using PGM; man-made gems in precision lasers for surgery
Clearly, however, we need to get better at recycling. We can say with confidence that the reuse of a PGM ounce will mitigate energy use and lower emissions versus mining a PGM ounce. Best estimates at this time are that a recycled ounce of platinum has 5% of the carbon footprint of a mined ounce. A beautiful aspect of precious metal sustainability is that they can be refined and reused indefinitely. Our goal should therefore be to gather them as thoroughly as possible after each of their incarnations, and continue to maximise the number of refine/reuse cycles.
In order to further perfect the refine/reuse cycle, precious metal owners must clearly understand the old adage that ‘cheaper is not better’. The important thing in the procurement equation is not the processing fee or freight costs; it is proper weighing and sampling and accurate analysis to correctly (and honestly) determine the precious metals content. This sort of quality in design and execution cannot and does not come cheap, so one must divide the equilibrium between quality of service and cost. Insufficient or unethical services translate to incorrect sampling, illegal disposal of wastes, and other improper behaviour. Utilising professional witnessing is always recommended, in addition to verifying compliance with anti-money laundering legislation of any PGM vendor.
As you and your company continue to use and recycle precious metals, make sure your PGM end up with a responsible recycler; root out and eliminate the unethical and wasteful through due diligence and investigation; forge global partnerships with industry stewards like yourselves; allow for fair margins, so that research and development can be properly supported; and discard perceived limitations and challenge the status quo. Long-term wisdom and meaningful innovation are best for families, but it is also what is best for business, and as a result it is what is best for the society of Mankind.
This short article appeared in the 2022 Refining India Newspaper, which you can view HERE
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