Platinum surplus to widen; fuel cells seen as key driver for future demand

14th May 2018 By: Marleny Arnoldi - Creamer Media Online Writer

Platinum surplus to widen; fuel cells seen as key driver for future demand

The platinum market will move further into oversupply this year, as production from South Africa remains flat and demand is forecast to contract by 2.5%, the latest Johnson Matthey platinum group metals (PGM) market report states.

Gross demand fell by 2% to 7.96-million ounces in 2017, as investment purchasing in Japan slackened following exceptional activity during 2015 to 2016. There was also a further contraction in platinum consumption in the world’s largest platinum jewellery market – China.

In contrast, demand for platinum in industrial processes set a record high on the back of capacity expansions by the Chinese glass and chemicals industries. Sales of platinum to the automotive sector were little changed, with diesel car production volumes stable in Europe.

“We had expected a tough year for platinum demand in 2017, but global diesel car production held up better than expected, and we saw some signs of improvement in Chinese jewellery demand during the second half.

“The real bright spot was industrial demand, which was at unprecedented levels. Chinese government initiatives have stimulated a huge amount of investment in new chemical and fibre glass plants, boosting demand for platinum process catalysts and platinum glassmaking equipment,” said the PGM market report author Alison Cowley.

Mine supply in 2017 was flat, with higher sales from South African producers offset by lower Russian and Zimbabwean shipments, while overall recycling volumes showed a moderate improvement.

Johnson Matthey forecasts that mine production will remain lacklustre in 2018, but says there is scope for further growth in recycling, as the global vehicle scrap market continues to rebound.

Total platinum supply remained at 6.11-million ounces in 2017, compared with 6.10-million ounces in 2016 and is forecast at 6.05-million ounces in 2018.

South Africa – the largest producer of platinum – reported a slight rise in production from 4.39-million ounces in 2016 to 4.46-million ounces in 2017, although its output will remain flat at 4.41-million ounces in 2018. Russia’s production is forecast to decline further, from 692 000 oz in 2017 to 662 000 oz this year.

Johnson Matthey expects demand to contract by 2.5% to 7.78-million ounces in 2018, from 7.96-million ounces in 2017 and 8.17-million ounces in 2016.

Including the impact of recycling, net demand fell from 6.24-million ounces in 2016 to 6.01-million ounces in 2017, leaving the market in a surplus of 101 000 oz. The oversupply is forecast to increase to 316 000 oz this year, with net demand of 5.74-million ounces forecast.

The report states that less platinum will be used in diesel aftertreatment systems in Europe this year, reflecting cuts in diesel car production, and a reduction in platinum loadings on vehicles certified to Euro 6d-TEMP standards.

Jewellery fabrication will contract slightly, but the Chinese market has shown some signs of stabilising and Cowley expects the rate of decline to moderate. Industrial demand will remain exceptionally strong, with continuing heavy investment in the Chinese chemical, petroleum and glass sectors.

FUEL CELL OUTLOOK

The Johnson Matthey PGM market report includes a feature on fuel cell vehicles, which states that demand for platinum in fuel cells is forecast to rise “significantly” in 2018, especially in China, where the rollout of fuel cell vehicle programmes – in a number of cities – has generated orders for significant numbers of fuel cell stacks to be delivered over the 2018 to 2021 period.

Johnson Matthey senior automotive and fuel cell analyst Margery Ryan comments that fuel cell technology is increasingly being used in heavy vehicles, as well as in passenger cars.

“Chinese automakers are developing a variety of fuel cell vehicle platforms – buses, in particular, are a promising market.

We expect hundreds of fuel cell buses to be deployed in major Chinese cities over the next couple of years. As fuel cell vehicles are fully electric, they attract generous subsidies from the Chinese government,” Ryan explains.

The estimated platinum consumption for fuel cell catalysts was less than 40 000 oz in 2017, with vehicles of all types accounting for about 40% of that. However, fuel cells are seen as an “important driver” of future demand.

“Platinum is being significantly thrifted, but there are currently no indications that it will be replaced in automotive fuel cell cathodes,” the report states.

Johnson Matthey expects economies of scale to lower the cost of fuel cells and says that, globally, fuel cell vehicle platinum demand could reach the equivalent of 5% of autocatalyst demand in 2025.

PALLADIUM OUTLOOK

Meanwhile, Johnson Matthey reports that the palladium market’s deficit widened to 801 000 oz in 2017, as mine supply from Russia declined and demand increased sharply.

The use of palladium in automotive emissions control systems surged by 450 000 oz in 2017, setting a new record of nearly 8.4-million ounces. With purchasing by chemicals producers also at historical highs, and a fall in the rate of redemptions by exchange-traded fund (ETF) investors, total palladium demand rose by 8% to 10.1-million ounces.

Although there was significant growth in the recovery of palladium from scrapped autocatalysts, Russian primary supplies fell by 13%, leaving combined primary and secondary shipments up only marginally.

Johnson Matthey market research manager Rupen Raithatha notes that investors in ETFs have redeemed nearly 1.7-million ounces of their palladium holdings over the last three years.

“This has helped to support market liquidity during a period of exceptional growth in automotive demand. However, persistent market deficits have had a real impact on the price, which reached a record high of $1 129/oz in January,” he says.

Raithatha adds that automotive consumption of palladium will set a fresh new all-time high of 8.6-million ounces in 2018, in line with growth in global production of gasoline vehicles.

However, there will be a modest decline in demand from industrial applications, such as electronic components and dental alloys, as high prices encourage further substitution.

“We also anticipate that investment demand will remain deeply in negative territory, with liquidation at similar levels to last year, while recoveries of palladium from automotive scrap will rise again. These developments will significantly outweigh the increase in autocatalyst demand, and will result in narrowing of the supply shortfall to 239 000 oz,” Raithatha notes.

Johnson Matthey market research GM Peter Duncan says that growth in autocatalyst demand will moderate to 2% in 2018.

“However, the prospect of significant growth in Chinese palladium loadings has moved closer, because it looks increasingly likely that some cities and provinces will implement the first phases of China 6 emissions legislation early, and that some automakers will skip China 6a and go straight to China 6b.

“This could happen as early as next year and would result in a double-digit increase in palladium consumption on Chinese cars,” Duncan concludes.