Pd, Ir outlooks diverge in clean energy transition

Palladium prices face continued volatility on challenges to recovering automotive demand and supply constraints, while advances in green hydrogen are supporting iridium usage.

The clean energy push is expected to limit consumption of palladium in catalysts for light vehicles with internal combustion engines. But it is creating opportunities for expanded use of iridium in hydrogen electrolysers.

Palladium prices soared to an all-time high of $3,060/oz in early March 2022 in response to traders' concerns that supply out of Russia would be disrupted by the conflict in Ukraine. The London Platinum and Palladium Market suspended Russian refineries from its goods delivery list in April, but the market remained in surplus as automotive demand came under pressure.

Automotive catalysts account for about 80pc of palladium demand, and automotive production was disrupted last year by ongoing supply chain constraints related to the Covid-19 pandemic and the semiconductor shortage. That in turn weighed on the palladium market, with prices falling to $1,820/oz by the summer. Following a rebound above $2,300/oz in October, prices dropped to $1,685/oz in late December. The market has since been trading about $1,750-1,800/oz.

North American demand for palladium automotive catalysts is estimated to have grown by 1.5mn oz in 2022, with the potential to rise further in 2023 if automotive supply constraints continue easing, according to Heraeus Precious Metals.

But about 85pc of purchases of new light vehicles are financed with a loan or lease, and with US interest rates climbing since March, higher financing costs are likely to deter some buyers and weigh on demand. December light vehicle sales in the US came in at 1.3mn units, indicating that vehicle inventories are slowly recovering but remain below pre-chip shortage levels, Heraeus said. Total light vehicle sales for the year fell by 8pc to 13.7mn units, their lowest level since 2011.

Palladium prices are set for continued volatility, as an easing of supply chain constraints would increase automotive production, but a recession in the US and higher financing costs could dampen demand. Catalyst producers have also continued to substitute lower-priced platinum for palladium, particularly since the March price spike. Recovering production of light vehicles will be offset by the loss of market share in combustion engines to battery-powered electric vehicles.

At the same time, a rebound in automotive recycling following the drop in production since the pandemic could offset operational problems at mines in South Africa and North America.

Anglo American Platinum (Amplats) has revised down its palladium production forecast for 2023 and 2024 to 1.15mn-1.25mn oz from 1.3mn-1.4mn oz previously. Output was about 1.2mn oz in 2022. Amplats has faced increasing electricity supply disruptions and delays to the rebuild of its Polokwane smelter in South Africa, while mining firm Sibanye-Stillwater suspended output at its US palladium and platinum mines in the summer following flooding.

Supply out of Russia could be affected by self-sanctioning among overseas equipment suppliers limiting the ability of Nornickel, the world's largest palladium producer, to complete planned maintenance and upgrades.

Green hydrogen adoption to drive iridium demand

Both Heraeus and Nornickel expect growing demand for battery electric vehicles to restrain demand for palladium in internal combustion engines, but Heraeus predicts the market will remain in surplus, while Nornickel anticipates a supply deficit in 2023.

The long-term demand outlook for palladium remains uncertain, but iridium prices have risen from last year's lows as consumption is rising from the increased use of proton-exchange membrane (PEM) electrolysers in the hydrogen industry.

Iridium prices rebounded from $3,950/oz at the end of November to $4,690/oz on Monday, their highest level since July. Prices had climbed above $5,000/oz in April as platinum group metal (PGM) prices climbed in response to the Russia-Ukraine conflict.

Production in South Africa, which accounts for about 80pc of global supply, is expected to increase slightly this year, but could be hampered by Eskom's ongoing electricity load shedding.

Iridium demand is expected to continue rising in 2023 and accelerate over the coming years, as industrial use of electrolysis enters the mainstream. Europe is targeting steelmaking decarbonisation through the use of green hydrogen. Hydrogen produced using renewable electricity to power electrolysis could potentially replace fossil fuels in iron reduction to reduce emissions. At least 14 plants using hydrogen feedstock could come on line in Europe by 2030, according to Heraeus, using on-site electrolysers.

A steel plant in Austria is testing the direct reduction process using hydrogen produced from a 6MW PEM electrolyser, with support from the EU. The EU plans to use the outcome of the test to assist in the large-scale adoption of the technology.

On Monday, UAE-based renewable energy company Masdar signed an initial agreement with the Port of Amsterdam, and aviation fuel supplier SkyNRG, storage facility Evos Amsterdam and logistics service Zenith Energy have signed an initial agreement to explore the export of green hydrogen to Europe for steelmaking, sustainable aviation fuel, bunkering for shipping as well as new offtakers via pipeline, truck and barge. The Port of Amsterdam has set a goal to import at least 1mn t/yr of green hydrogen, while Masdar's green hydrogen business plans to produce 1mn t/yr by 2030.

By Nicole Willing