JOHANNESBURG (miningweekly.com) – Platinum group metals (PGMs) supply and demand will be severely impacted by the Covid-19 pandemic, as national lockdowns hit auto production as well as South African mine output, Johnson Matthey said on Monday.

Autocatalyst use was expected to fall by at least 15% to 20% and PGMs supply by more than 20%, owing to South African mine shutdowns and recycling network disruption.

This follows the PGM markets being in deficit in 2019, caused by a surge in platinum investment and record autocatalyst demand for palladium and rhodium.

According to estimates published in Johnson Matthey's latest PGMs market report. investment demand surged to a record 1.13-million ounces last year, offsetting lower consumption in automotive, industrial and jewellery applications.

During the same period, automotive demand for palladium and rhodium soared to all-time highs, as the phase-in of strict China 6 legislation caused a step change in PGM loadings on Chinese cars.

As market liquidity worsened, both metals saw steep price gains which continued into early 2020.

Palladium set a new record of more than $2 800/oz in February 2020, while rhodium surged to all-time highs above $13 000.

PGM prices fell steeply in March, as the Covid-19 pandemic triggered sell offs in equity and commodity markets.

Supply and demand for PGMs are forecast to contract sharply this year, as lockdowns and other public health measures create significant challenges for the manufacturing, transportation and mining sectors.

South Africa’s lockdown resulted in temporary shutdowns at many PGM mines and refineries from late March. Although South African mines were permitted to operate at 50% of normal levels from mid-April, the introduction of physical distancing measures, Johnson Matthey stated, would have a lasting impact on mining volumes. There would also be a steep fall in secondary PGM supplies, owing to severe disruption to recycling networks and a sharp decline in the number of vehicles being scrapped.

Johnson Matthey principal analyst Alison Cowley commented that the adoption of stringent infection-control measures would limit PGM mining volumes, especially at South Africa’s labour-intensive mines.

However, to date Russian production had been relatively unaffected, which meant that platinum and rhodium supplies were likely to be more heavily impacted than palladium.

Meanwhile, the recycling network was grappling with business shutdowns, transportation difficulties and financial pressures.

Some scrap collectors might be unable to fund the purchase of secondary materials, while processors were trying to reduce work in progress to generate cash.

“From mid-2020, we could see a steep drop in secondary PGM supplies,” Cowley stated in a media release to Mining Weekly.

Johnson Matthey predicted that autocatalyst PGMs demand would fall sharply in 2020, reflecting temporary closures at most major automotive plants and a contraction in consumer demand for new cars.

Based on third-party forecasts, light duty vehicle production was expected to fall by around 20% this year, while car companies might also seek to reduce the PGMs content and cost of their emissions control systems.

PLATINUM SUBSTITUTION PROGRAMMES MAY BE ACCELERATED

In China, new regulations might enable car companies to implement catalyst changes more quickly, which could allow some domestic automakers to thrift palladium and rhodium, and to accelerate platinum substitution programmes.

The impact of Covid-19 on industrial PGMs demand in 2020 would vary significantly between sectors and regions. While end-use segments such as textiles and automotive had been severely affected, others remained relatively buoyant. This was particularly true of chemicals used in the manufacture of personal protective equipment, drugs and disposable medical products.

Chinese PGMs demand would also be supported by the completion of capacity expansions under the government's current five-year plan, and by lower PGM prices. In March, platinum purchasing by industrial consumers on the Shanghai Gold Exchange hit an all-time high.

Johnson Matthey market research director Rupen Raithatha said a steep price decline in mid-March triggered exceptionally strong demand for platinum ingot in China and Japan.

Sales on the Shanghai Gold Exchange totalled around 340 000 oz in March, more than twice the previous monthly record.

Most of this buying was by industrial customers, who took advantage of low prices to pre-buy metal required for planned capacity expansions.

Demand for platinum investment bars in Japan also set an all-time monthly high, as the yen denominated retail price sank to a seventeen-year low.

This contributed to shortages of platinum ingot and led to a steep rise in platinum lease rates to around 10% in late March, Raithatha stated.