Economic News and the Outlook for PGMs and PGM Recycling by Becky Berube
At the time of writing, it is 92 days until the US Presidential Election, the Dow, S&P, and Nasdaq each tumbled roughly 3 percent in three days. Recession fears are mounting with lower-than-expected jobs added and unemployment rising, the 10-year Treasury yield hits 3.716%, construction of new homes and existing home sales both declined, investors are selling off oil, crypto and tech stocks - the “Magnificent Seven” large cap tech stocks lost nearly $1 trillion in market capitalization; Warren Buffet’s Berkshire sold roughly half of its stake in Apple; Bitcoin lost $500 billion in market cap. The very next day, the market could recover nicely. The word of the day and maybe the word for the next few years is volatility.
As investors sell off riskier stocks, typically gold and other precious metals become haven investments. On Friday, August 2, gold reached an all-time high amidst hopes of a Fed rate cut and disappointing US job data, then gave up 2 percent on Monday, July 5, triggered by panic and sell off in the Japanese market. Platinum dropped 4.1 percent and palladium decreased by 4.5 percent to its lowest level since August 2018.
What does all this mean for the Platinum Group Metals (PGMs) and PGM recycling, the lion’s share of which comes from scrap catalytic converters?
The following articles help explain some of the key issues plaguing PGM supply, demand, and price and are worth the read.
In the World Platinum Investment Council (WPIC) June newsletter, Platinum Perspectives, Edward Sterck and team give a fantastic overview of the WPIC outlook is for platinum and palladium supply, demand, and price. WPIC’s latest palladium supply/demand forecast projects tightening deficits for 2024 and 2025, followed by surpluses from 2026 onwards. Contrary to received market wisdom, the surpluses are not the result of a rapid decline in ICE demand, which remains relatively flat (fig 3). Indeed, the projected transition to a surplus is entirely contingent on a significant increase to recycling (over 1.3 Moz p.a. by 2028, fig 1), but this outlook is predicated on a number of existing challenges being resolved. Any delays to solving these could slow the pace of the growth in recycling supply, resulting in deeper and more persistent deficits and further postpone the surplus. This would in turn feed into value expectations and provide upward support for the palladium price, especially in the context of any potential short covering rallies (fig 2)
Of further note, Jake Lingeman of Newsweek, writes in an article titled, Today’s New Car Sales Part of a Great Recession-like Trend, Car sales have continued their climb over the last few months, according to J.D. Power and GlobalData. Prices are down while units moved are up both from April and from May of last year. The industry is producing more vehicles than it sells, which traditionally results in discounts later in the year, once models have sat on dealership lots for a few months. Thomas King, president of the data and analytics division at J.D. Power explained, The pricing story of the automotive industry in 2024 is a compelling economic case study. Year to date through May, average transaction prices have declined by nearly 3 percent compared to 2023. Such a decline is rare, with the last significant drop occurring during the Great Recession.
Traditionally, supply and demand fundamentals would dictate that market balances, deficits and surpluses, would guide changes in PGM prices. The WPIC article and forecast show short to mid-term deficits for platinum and palladium in 2024 and 2025, leading to surpluses depending on recycling volumes for 2026 and beyond. Some analysts have predicted that the two-thirds primary supply of PGMs from mining and one-third secondary supply from recycling is set to flip in the coming years to two-thirds from recycling and one-third from mining.
Sibanye-Stillwater CEO, Neal Froneman, says firm prepared to mothball US mine, at the London Indaba conference in June, if there is no correction in the platinum and palladium price. David McKay writes in his June 10 article for MiningMx.
Froneman is one of the mining executives that believes the market fundamentals, namely the current deficit, will lead the prices to “pop.” But there seems to be a market disconnect as explained by various industry experts in McKay’s July 26, No sign of life yet in PGMs despite industry restructuring, Wilma Swarts, PGM research director for Metals Focus, a UK research consultancy firm, says there is greater evidence to support that mining production cuts in South Africa could be three times higher over the next five years than South African PGM miners have announced. It’s true that platinum is in a supply deficit; it is estimated by the World Platinum Investment Council to total 476,000 oz this year, compared with an 878,000 oz deficit in 2023. Palladium is also edging into deficit territory. But the market is not taking these figures on board as of yet. That’s because the traditional supply-demand drivers are less impactful than conventional wisdom suggests, says Nedbank Securities analyst Arnold van Graan.
Are the platinum and palladium market prices about to recover? continue to soften? The outlook is mixed, and investors are encouraged to stay on the sidelines until there are some real indicators of recovery. Read full article here.
It has been three years since the bubble in PGM prices began to deflate as McKay writes, we currently see mines restructuring, layoffs happening, one mine threatening to close, there have been disruptions in PGM recycling, auto manufacturers are still destocking PGM supplies, oversupplying automobiles, and auto prices declining. The US economic indicators are pointing to an economy that is rapidly slowing and heading into or has already been in a recession. And in the world of PGM prices, there are whispers of recovery amidst an extended period where fundamentals and spot prices are disconnected. All at a time when platinum and palladium are slipping into a structural deficit (2024 – 2025) which could theoretically help prices in the short to midterm while at the same time recycling volumes are predicted to double in the long term (2026 and beyond) keeping prices level or softer if demand remains flat or weakens.
The bright light in all of this for those involved in PGM recycling? The WPIC June newsletter states that, Market sentiment has been particularly negative towards palladium due to a view that demand will fall away with rapid drivetrain electrification. In reality, however, the outlook for auto demand is proving resilient due to consumer reluctance to adopt full electrification and growth in demand for hybrid vehicles (10-15% higher PGM loadings versus the pure ICE equivalent).
For daily updates on the PGM markets, subscribe to the United Catalyst Corporation daily e-newsletter, the 60-Second Report, TEXT Daily to 844-713-PGMs (7467). To learn more about recycling converters on assay or the United Ecosystem Bid Tool, you can also call an Account Executive at 864-824-2003 or email a specialist at sales@unitedcatalystcorporation.com
Becky Berube has served the recycling community for over thirty years. Based in Greenville, South Carolina as President of United Catalyst Corporation, she writes a monthly educational column for the industry, and serves on several ARA and ReMa committees. She is a newly appointed Advisor on the US Industry Trade Advisory Committee on Critical Minerals. She was a recipient of a 2023 South Carolina Women in Business Award and is a mentor in the Women in PGMs program. Additionally, Becky serves as an At-Large Director of the ReMa Southeast Board, Co-Chair of the IPMI Preventing Auto Catalyst Theft Committee, and is on the Board of Directors of the International Precious Metals Institute (IPMI), where she is a past President
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