If you had told me a year ago that I wouldn’t travel for work or pleasure for the next 12-18 months, I would have said you were crazy. And equally so had anyone suggested that Rhodium would spike towards the 30k marker. Here we are closing the first quarter of 2021 and the Platinum Group Metals (PGM’s) continue breaking records. Will the prices last and how did we get here?
In normal times (pre COVID-19 pandemic) we were able to look at global economic trends, mining capacity and the role of recycling to reasonably predict and anticipate metal pricing in the coming year. While we could technically say our prediction formula fundamentals are by in large the same, COVID-19 has for sure thrown some real curve balls at our models. By the end of 2019 the biggest impact on the PGM markets looked to be coming from China and India as they were moving towards stricter emissions standards.
Living in a world that at times has seemed stranger than fiction, traditional predictive models couldn’t possibly take into account the daily twists and turns offered up by the global pandemic and political landscape changes. So, in what has actually become predictably unpredictable let’s examine the things we know, the impact on the market and what can possibly come from it.
For starters China, the world’s most populated country, moved ahead with significant strengthening of emissions standards. This in and of itself had a tremendous impact on the demand for PGM’s (Platinum Group Metals). The world’s most populated country is moving from near non-existent emissions standards to almost matching most western nations, the transition has placed lasting and long-term upwards pressure on platinum group metals that historically run at in a deficit position.
Even in the good old pre-pandemic era 2019, all three catalyst required metals Platinum, Palladium and Rhodium were running in physical deficits. Projected demand consistently outpaced both the mining and recycling capacity to meet it. In the last year while overall global catalyst needs both for automotive and industrial shrank so did the ability to produce the metals, resulting in a perfect storm that has driven metal prices to record highs in the first quarter of 2021.
While the west has not quite yet gotten past the day-to-day effects of COVID-19, China is well ahead of the rest of the world in getting back to “the new normal.” Where the pandemic reduced automotive demand when the country was in lock down, Chinese auto manufactures are exceeding projections for new passenger vehicles. In a pre-pandemic world, public transit was the norm. In a post COVID China, more individuals have a greater desire for access to personal transportation, rather than risking public transit. COVID was held responsible for a 6% decline for the automotive sector in China in 2020, they are on track for an 8% recovery in the first quarter of 2021.
While there was increased demand for PGM’s in the latter half of 2020 from China, Western Nations have not yet seen any real economic recovery from ongoing lock downs. Second and now third waves of COVID-19 continue to stall what promises to be an economic recovery. While stock markets have remained robust, retail auto sales in the West are down. In the US new vehicle sales were down -15%, the biggest drop since the 2008 financial crisis. Further new vehicle sales in combined European markets are estimated to be down -24.5% for 2020.
If this were any normal time, decreased auto sales numbers like this should have tanked the PGM markets. In COVID-19 times it meant, diminished production capacity from the world’s major mining producers and considerably fewer end of life vehicles for the recycling industry.
In South Africa it is estimated that COVID-19 and other production related issues reduced mining out-put anywhere from -18% to -20% for 2020. When we consider that nearly two thirds of all the worlds PGM’s come from the region it is obvious why metal prices continued the upward trajectory. COVID was not the only cause of production slowdowns although it was the major contributing factor. Complying with social distancing and returning migrant workers made it very challenging for most operations to return to 100%. In fact, it was not until the latter half of 2020 that South African mining production got back on track.
Another factor contributing to the material shortage was the secondary recycling sources of PGM’s. With new car sales declining globally this had a natural effect on available recycled materials. It can be assumed that when a new vehicle is sold it will translate into a vehicle being recycled, while it is not precisely a 1 to 1 ratio it is close. That said there was a significant reduction of scrap material entering into the recycling stream further contributing to precious metal shortfalls for future market demands.
Now that we have a broad idea of how we got to record high prices where do we go from here? The PGM’s for 2021 seem to be on track to hold value if not continue to increase somewhat. At least that is the overwhelming consensus from all the experts. For those of us in the recycling industry we should always take predictions of markets holding or going sideways with a very large grain of salt. From my perspective as a recycler, it is best to turn recycled converters as quickly as possible in a given market. This way any margins built into the acquisition of the core will be assured in the event of a significant downturn.
For now, with PGM prices breaking records each day with slight dips and then gains it looks like 2021 will be relatively stable with pricing in the early part of the year. As the world gets back to some kind of normal with anticipated mass vaccination it will take both the mining and recycling industry get back to regular production. While there will be more available material demands technically should rise too. How quickly the supply side will get back to a normal position only time will tell. If I am reading the tea leaves correctly the back half of 2021 should also keep metal prices elevated giving a slow march back to regular production and consumption.
From the perspective of recycled catalytic converters, the available material out there has become increasingly limited. What is being recycled is highly sought after either as a core already removed from an end-of-life vehicle or on a on that same vehicle coming across a scale or auction. Catalytic Converter core buyers have sprung up out of nowhere, catching the wave of metal pricing. For many they do not fully comprehend the market impact on the core and the possible purchasing mistakes. All the Jonnie-come-lately see is potential fast profit, in the last months the upswing market has erased most purchasing mistakes. Even with slight corrections at current market levels mistakes can be costly.
The overly competitive converter market has also put pressure on profit margins. The new entrants into the market typically have limited information and often take greater risks on the recycled value of the core just to get a piece of the action. Long-time auto and scrap recyclers are forced to pay premiums or miss out entirely on the material. Once again, I can’t say it enough, “Buy and sell converters as quickly as possible in the same market to insure the slim margins now available.”
In order to prosper with recycled autocatalyst in the current market conditions it is vital to have as much reliable core information as possible coupled with a buyer that can assist with rapidly changing market conditions. Further for those of you that are using toll refining services for your converter material the biggest asset you will find is having your material turn time as short as possible to also react to markets quickly.
So to wrap up where we are headed, hold on it’s going to be a wild ride as the West begins its way back to the “New Normal.” 2021 as markets heat back up will be full of ups and downs and a lot of opportunity for those who have the right knowledge.
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