Viewpoint: Chip shortage to pressure PGM market in 2022

Weak automotive demand, fuelled by the shortage in semiconductors, is likely to keep the pressure on platinum group metal (PGM) prices through 2022, as worries over uptake in catalytic converters continues to mount.

PGM prices in the second half of 2021 fell quickly before flatlining in November and December as the effects of the chip shortage on passenger vehicle production worsened. On 1 October-10 December, platinum prices fell by 2pc to $954/toz from $972/toz, while palladium prices dropped to $1,813/toz from $1,904/toz, with rhodium prices following a similar trajectory.

This trend is likely to continue into 2022 amid concerns over the likely fall in physical demand if fewer passenger vehicles are produced.

Of the 7.3mn oz of platinum forecasted to be used in 2021, 2.7mn oz are consumed by the automotive sector, representing 36pc of total demand, according to the World Platinum Investment Council (WPIC). Meanwhile, rhodium's demand from automotive is much higher, with the German chemical firm Heraeus forecasting total demand at 1.06mn in 2021, of which 940,000oz accounts for gross auto-catalyst demand, or 89pc of the total.

"The semiconductor shortage is now estimated to impact global light-vehicle production by 9.6mn units in 2021," Heraeus said in a recent report. "While this is a slight improvement from earlier forecasts, the disruption is not expected to meaningfully improve much before the second half of 2022, and closing the chip supply shortfall appears to be unlikely before 2023."

Volvo Cars said production had fallen by 50,000 units in July-September from the same period in 2020, while Volkswagen said globally 1mn units are expected to be lost because of the semiconductor issue.

The lack of demand from the auto sector has also coincided with falling demand from private investors. During the Covid-19 pandemic, many traders sought safe haven investments in the precious metals market over traditional equities, which WPIC estimates rose by almost a quarter, or 296,000oz, in 2020. But investment demand has fallen significantly since, with WPIC forecasting an 86pc decline year on year, or 225,000oz.

Increased supply outlook

The supply of PGMs is also likely to increase in 2022, with all major producers forecasting rises in refining and mined supply.

South African chrome and PGM producer Tharisa has forecast an increase of 7pc for 6E PGMs, while Impala Platinum is expecting a 44pc bump in production, with the latter also responsible for refinement of the final product.

Anglo American Platinum also raised its 2021 forecast for refined production to 5.0–5.1mn oz from 4.8-5mn oz, on improving refining rates last year.

Hydrogen economy remains a bright spot

Despite the expected weakness in demand, a growing hydrogen economy is set to provide a medium to long-term boost for PGM demand, particularly for iridium and platinum.

Both precious metals are used within the catalysts for hydrogen fuel cells, and based on current technologies are still vital components of the fuel cell. The US has added platinum and iridium, in particular, to its critical minerals list, removing them from within a broader PGMs classification to highlight their role in the future energy transition.

According to the International Energy Agency, the catalysts in a proton-exchange membrane electrolyser (PEM) require roughly 1t of platinum and iridium for each GW combined, while expected demand for hydrogen is to reach 105mn t by 2030, which would increase PGM demand to 63,000 t/yr if all electrolysers were PEMs.

That said, only 31pc of current electrolysers are PEMs, with alkaline electrolysers making up 61pc, which use materials like nickel over PGMs.

By Yusuf Khan