Platinum group metals (PGM) in 2020 will be significantly affected by the COVID-19 pandemic – both primary supplies due to temporary shutdowns of mining enterprises and secondary supplies due to restrictions on the collection and processing of scrap, says Johnson Matthey’s review. (JM).
The demand for PGMs for autocatalysts is declining sharply, as evidenced by short-term downtime at most large car factories and declining consumer demand for new cars.
The jewelry market is also expected to be hit hard, although low platinum prices in March boosted stocks up in the Chinese distribution chain.
Investment demand for platinum bars also rose in March as the yen price drop to seventeen-year lows triggered a wave of buying from Japanese investors.
“As the pandemic spread in Asia, and then in Europe and North America, industry production forecasts were constantly revised and reduced,” JM experts note. “When we were preparing the materials for publication, it was not yet possible to quantify these changes in supply and demand, and decided to refrain from their own forecasts for 2020. “
It is also not yet clear to what extent primary and secondary supplies will be disrupted. Therefore, taking into account all these circumstances of uncertainty, this year it is impossible to make a qualitative forecast of the market balance of platinoids, according to JM.
Production is expected to drop in 2020, and the first reason for this is the national quarantine in South Africa, which was announced on March 26. Because of it, almost all platinum mining operations in the country were put on maintenance, and most of the smelting and processing facilities were generally idle.
It was only in early April that the government authorized the resumption of restricted mining at Anglo American Platinum’s (Amplats) Mogalakwena quarry, and on April 16, all mines, but at 50% capacity, subject to strict safety measures.
“However, we expect production to be extremely limited, especially in underground mines, and it will take more than a month to return to normal, stable production. As physical distancing measures are probably the most difficult to implement in deep underground mines where conventional labor-intensive mining methods “, – noted in JM.
Platinum and rhodium will suffer the largest production losses, with slightly less affected palladium. “We expect some time distortion in the division of PGMs in production processes in South Africa,” reads the review.
The best mining performance will be shown by the Mogalakwena mine (Amplats), which could have been operating during most of the quarantine period. The ore recovered there is rich in palladium but has a low rhodium content. And the rhodium-rich raw materials mined in the west of the country will go into processing much less, since the enterprises were idle for more.
South African shipments this year will also be affected by the lengthy Amplats converter refurbishment. On March 6, the company announced force majeure in production due to the need to temporarily stop the entire converter shop. The shutdown led to the termination of supplies of matte to processing facilities, and the temporary suspension of PGM refining. The company also stopped processing third-party tolling raw materials. Later, Sibanye-Stillwater provided its spare capacity to process a certain amount of PGM raw materials during the period of force majeure, but this did little to help the situation.
The closure of the converter plant led to the accumulation of PGMs in work in progress both at Amplats’ own facilities and at third party mines. Initially, it was assumed that it would take up to two years to process the accumulated reserves, but the closure of pits and mines associated with COVID-19 significantly reduced the volume of receipts to warehouses, and now Amplats expects to be able to process the accumulated reserves by the end of this year.
It is difficult to accurately estimate production losses at this stage, but based on the current picture, JM expects South African PGM production to decline by at least 20% in 2020. At the same time, the rate of decline in palladium production will be slightly lower than that of platinum, and rhodium, as already noted, in the autocatalyst kit will suffer the most.
At three platinum mines in Zimbabwe, PGM production was also affected by quarantine measures, but to a lesser extent than in South Africa. In Zimbabwe, all mines are mechanized, and did not stop working during the quarantine period, however, interruptions in the transportation of concentrate and matte could lead to the accumulation of stocks of semi-finished PGM products.
In other jurisdictions, the impact of COVID-19 appears to be absent or negligible. Norilsk Nickel, for example, has not yet reported any interruptions in production or changes in production plans. Palladium production is expected to decline to 2.65-2.78 Moz in 2020 from 2.92 Moz in 2019, reflecting the depletion of palladium-rich, previously produced and stockpiled concentrates that have had a positive impact in recent years. on the statistics of the company for the production of PGM.
The entry into the market of recycled metals has also been hit hard by the pandemic, from supply chain disruption to collection and transportation of autocatalyst scrap.
At the time of writing, global car sales are expected to fall by at least 20% in 2020, meaning that far fewer cars will be scrapped this year compared to last year.
In March, there was exceptionally strong demand for platinum bars in China and Japan, as investors, industrial consumers and jewelry distributors took advantage of the low prices. This has led to a shortage of bullion in traditional shopping centers in Europe.
In Japan, the March demand for bullion set an absolute record – in one month, private investors bought about 200 thousand ounces of platinum. A sharp decline in prices tends to stimulate purchases. Overall, in the first quarter, Japanese net investment was about 220 thousand ounces. However, demand in the second quarter, according to JM experts, will be weaker.
In other countries, investment in PGMs during the first four months of the year was much lower. For platinum, palladium and rhodium, ETFs declined across the board. Thus, investors in Europe and North America showed moderate sales of palladium, and investors in South Africa – high sales of platinum and palladium.
At the same time, in China, the fall in platinum prices in March triggered strong demand for bullion. With supply routes temporarily interrupted, sales of bullion on the Shanghai Gold Exchange (SGE) set a record monthly high, with a total of more than 10.6 tonnes purchased by jewelry and industrial buyers, more than double the previous monthly record.
Much of the metal was destined for industry as petrochemical and glass companies decided to take advantage of the low price opportunity ahead of the expansion planned for the period 2021-2022. Chinese jewelers and wholesalers also took advantage of the low prices to replenish their stocks.
The demand for PGMs is expected to fall this year from the main industrial consumers. The auto industry will be particularly affected by the temporary closure of factories in the first half of the year. Other consumers’ appetite for big purchases will also remain low for the rest of the year.
PGM consumption in the chemical, glass and refining industries may be less affected by the effects of COVID than autocatalyst demand, at least in the short term. However, it is likely that eventually – depending on the depth of the recession – “we may see some old and inefficient factories shutting down and then releasing their PGM stocks on the market.”
In the near future, there may also be a drop in demand for fiberglass from end users such as automotive and construction, but this will be partially offset by increased consumption in telecommunications (for 5G infrastructure) and wind energy.
An immediate high risk to demand is possible in the manufacture of liquid crystal displays (LCDs).
In the electronics industry, nationwide quarantine measures have resulted in severe short-term disruptions in the production and shipping of both components and finished devices. This contributed to the drop in retail shipments of laptops, smartphones and other gadgets in the first quarter, partly due to weak consumer demand, but primarily due to transport communications.
The use of platinum to coat turbine blades for aircraft engines will have a significant short-term impact on demand – at least a third due to production cuts at Airbus and Boeing. The use of PGMs in spark plugs and automotive sensors will also decline sharply, broadly in line with trends in automobile manufacturing.
Even medicine will be affected, albeit to a lesser extent than in some other applications of PGM, as supply and production chains are disrupted. Dentistry will feel it especially strongly.
It may take several years before the picture of the impact of the COVID-19 crisis becomes clear: for example, after the global financial crisis of 2008, a wave of refinery closures occurred about three years later, when low-margin operations finally recovered and competition from outside increased. new and more efficient facilities in Asia and the Middle East. This led to a decrease in demand for platinum in the refining industry in some regions during the period 2011-2013.
Gold Miner Bulletin