With the news of effective and soon-to-be-deployed coronavirus vaccines and a decisive result in the US presidential election, global political and economic uncertainties have started to ease and there is a renewed sense of optimism.

Platinum-group metals (PGMs) have been enjoying a surge, with rhodium in particular hitting all-time highs, owing to challenges in the South African refining sector and renewed demand in the automotive industry, says trading company Mitsubishi Corporation in its November 2020 report.

Regarding precious metals, macroeconomic conditions are likely to remain very favourable, with negative real rates boosting the investment case for these nonyielding assets, economic tail risks of the policy responses of 2020 favouring risk hedging, and the prospect of significantly higher inflation in future as governments figure out a way to pay for the unprecedented level of pandemic-era spending.

This generally supportive backdrop is further bolstered by the reality of higher industrial demand for silver and PGMs, which should benefit from the post-pandemic economic rebound, a new focus on climate and emissions control, the desire to ‘build back better’ and a world where healthcare is given renewed primacy, says the company.

Platinum

Platinum prices remain supported above the $950 level, partly as a result of supply tightness emanating from processing issues in South Africa as well as resurgent investment interest.

Platinum was on an upward trend for most of November following platinum major Anglo American Platinum’s announcement that it would close its Phase B converter plant, owing to ongoing water leaks. With the twin Phase A unit still undergoing maintenance, this would effectively curtail refined output for the remainder of 2020, though underlying mined output would continue at close to full capacity.

The company therefore lowered its production guidance for the full year of 2020 to about 2.5-million PGM ounces, a reduction by roughly a fifth of previously projected output. The resulting build-up of work-in-progress inventory was intended to be refined at the beginning of 2021, when the Phase A unit was expected to return to operationality, though any delays would continue to cause physical tightness in the market at a time when demand may be beginning to recover.

Ongoing national lockdowns in Germany, France, the UK, Belgium and several other countries make it difficult to be optimistic for the near-term prospects of the European car market, says Mitsubishi Corporation. In the first ten months of 2020, sales were down 29% on a year-on-year comparison – by far the worst performance of the major economic regions. The second lockdowns are likely to result in a W-shaped pattern of recovery.

Further, the diesel market share in Europe stood at just 27.8% at the end of the third quarter, with a direct negative impact on platinum demand. There is little evidence of substitution in Europe, despite platinum’s substantial discount of 60% to palladium, though in the US, where catalyst reformulation and homologation rules are more flexible, this has started to take place.

Palladium

Palladium prices hit eight-month spot highs of over $2 500 in early November following the Anglo announcement of lower guided production and as automakers and industrial users sought to cover their metal requirements. Things quietened down, despite positive vaccine news, as the reality of national lockdowns somewhat dampened demand mid-month.

Mitsubishi noted that palladium, boosted by a weaker dollar and a growing risk-on rally as investors reposition themselves for an economic upturn in 2021, recovered somewhat in November 2020.

Demand for palladium in emissions control has risen in line with the strong recovery in the Chinese car market since May – the country has now registered six successive months of growth in car sales, its best performance since 2016.

The advent of China’s emissions legislation also denotes a rise in the average loading of palladium (and rhodium), which has been apparent in the buying patterns of original-equipment manufacturers for several months. As the economy continues to recover and more individuals aspire to car ownership for the first time, the company believes palladium demand will continue to be underpinned by China’s automotive sector.

One of the first acts of the incoming Biden administration is likely to be to seek to rejoin the Paris Climate Accord. Regardless of the ease with which the new administration can pass climate-friendly legislation from next year, rejoining the Paris Agreement will be a clear signal of intent and will likely be followed by moves to improve vehicle fuel efficiency and regulate other pollutants as well as promote green energy.

This is likely to be generally favourable to PGMs in emissions control, coming at a time when the automotive industry is in recovery phase and as the rest of the US follow California’s lead in addressing regulated pollutants and lowering average vehicle carbon dioxide emissions.

Some of this will promote the use of pure battery electric vehicles, which would displace some PGMs demand, however, a more widespread adoption of electrified drivetrains would benefit palladium, rhodium and platinum demand, and, in the longer term, the promotion of hydrogen fuel cell technology will overwhelmingly benefit platinum.