Since August 2021, Platinum Group Metals (PGMs) prices have been on a downward trend. One does not need a market expert to point out that the current bear market is brought about by the ongoing Covid-19 pandemic, which not only dampens global production and sale of new automobiles but also adversely affects international trade with widespread logistics disruptions. This situation is further aggravated by chip shortage which forced many auto manufacturers to temporarily shut down their production lines in November this year.
Given that the auto manufacturing industry uses over 60% of PGM global supply, the lack of demand sends PGM prices tumbling from September onwards. Analysts have identified the following reasons for the bear market and why the outlook is likely to remain gloomy in the first quarters 2021 if all the current conditions remain largely unchanged.
1. Shortage of chips
During the COVID-19 pandemic, most automotive manufacturers were forced to shut down operations and stop the production line. As the situation took a turn for the worse and without an end in sight, they anticipated a massive drop in auto sales, and so most of them cancelled or postponed their semiconductor chips orders. As a result, the semiconductor manufacturers shifted their focus to other industries.
When the auto sales gradually picked up with government stimulus packages, the chip manufacturers struggled to meet the surge in demand since they were also affected by reduced production capacity due to lockdowns and COVID-19 containment measures.
As the semiconductor manufacturing cycle can take up to 4 months from design to mass production, supply just can’t keep up with the demand. This situation is exacerbated by widespread supply chain disruptions worldwide. As a result, automotive manufacturing companies, Nissan and Subaru had to cut back on production while Volkswagens, Ford and GM resorted to shutting down entire production lines. The total car production fell by 8 million this year. It goes without saying this has a significant direct impact on PGM prices with Rhodium price falling by as much as 50% from its height in June/ July.
Most industry observers believe that this situation will improve and automotive production will increase by about 15% next year. Whether this will bring up PGM prices remain to be seen as most auto manufacturers are pivoting to Electric Vehicles (EV), which do not require catalytic converters unlike vehicles with Internal Combustion Engines (ICE).
2. Global PGM Consumption & Supply
The global consumption and supply of PGM is also a rising concern. Consumer preference is steadily shifting to EV, and all major manufacturers are taking advantage of generous tax incentives and government subsidies to meet steadily increasing demand.
The International Energy Agency (IEA) accumulated the data on the number of electric vehicles (EV) on the road from 2017 to 2020 – the global growth of EV was about 6 million within three years. The move away from ICE vehicles has dramatically affected PGM prices – especially Palladium and Rhodium – and will continue to do so in the coming year.
3. Price and Demand
The decline in sales and production of ICE vehicles had a detrimental impact on PGM price since automakers consumed approximately 40% of Platinum, 80% of Palladium and 90% of Rhodium globally.
If the current trend persists into the new year, it will have a detrimental impact on PGM prices leading to a sizeable surplus of about 637,000 ounces for Platinum in 2022. The outlook is equally gloomy for Palladium and Rhodium.
What does it all mean for the Catalytic Converter Recycling Business
In the coming year, PGM prices will most likely remain volatile. Price volatility will be compounded by downward pressure on profit margins with increased competition as more players enter the market. Hence, it is crucial to reach out to a recycling partner for reliable information and risk management guidance to ensure the best possible margins.
As a leading processor of catalytic converter in Asia, we have helped numerous customers grow their volume and profit over the years with risk management strategies, financing options, flexible payment options and technical support. Most of our customers grew their volume by at least 20% with each lot without a price APP or list. If you are keen to find out more, send us an email to info@brmetalsltd.com or WhatsApp +65 9469 9992.
