Auto sector disruptions accelerating PGM market shifts

Disruptions to global automotive manufacturing, largely owing to the semiconductor shortage, are accelerating shifts in the PGM market as demand for rhodium and palladium drop faster than expected, panellists at the LBMA/LPPM Virtual Precious Metals Conference 2021 said yesterday.

The car industry's shift from internal combustion engine vehicles to electric has long been recognised as a headwind to consumption of rhodium and palladium, which are traditionally used in catalytic converters to reduce the emission of harmful gases, but this year's upheaval has potentially hastened the shift.

"Palladium and rhodium are definitely a loser as you move from your combustion engines over to electric vehicles [EVs]," Dwight Anderson, founder of commodity investment management firm Ospraie Management LLC, said at the conference. "Palladium and rhodium are dominated by auto catalysts and we had thought that there were most likely another two years of deficits, especially in rhodium, with a normal auto production scale," Anderson said. "But the supply constraints that we did not expect, such as the fall in auto production caused by other constraints, maybe have accelerated that [move away]."

Those tremors on the demand side have had a significant impact on PGM prices this year, quickly pulling them down from the record highs of February-March as automotive sentiment soured. Rhodium prices hit a record high of $29,800/ozt on 23 March, but have since dropped to $12,600/ozt — their lowest level since the end of August 2020, according to UK-based Johnson Matthey. That said, rhodium is still up comfortably from its pre-pandemic norms of below $10,000/ozt.

Rhodium has a "tendency for needle-like price movements, and after the last peak in June 2008, it dropped by 85pc in the first year", German chemicals firm Heraeus said yesterday in a note. Heraeus added that that the chip shortage is likely to result in the loss of 7mn light vehicles, which would equate to "a reduction in demand of almost 1mn oz palladium and over 100,000oz of rhodium this year alone, which shifts the rhodium market into surplus."

This sentiment was also echoed by Tom Kendall, global head of metals sales at ICBC, who argued that simultaneous supply chain disruptions across multiple industries are likely to upend traditional forecasting.

"When you are talking about solar energy, hydrogen production and energy storage it is all copper, nickel, the platinum group metals, silver and to an extent gold," he said, but added that "supply chain interruption can really throw some of these more bullish forecasts about the adoption of things like EVs right up out of the window".

"I look at some of those forecasts, less than 5pc of global vehicles produced in 2020 were full EVs and even if you are the most optimistic EV evangelist, you cannot really grow that exponentially at infinitum. There are a lot of constraints, not just in the supply chain of a very strategic raw materials, but also in the infrastructure build out and the storage of renewable energy to generate," Kendall said.

By Yusuf Khan