Platinum offering good relative value as investment – Northam

Platinum is viewed as an investment case for the moment and is offering good relative value, says Northam Platinum CEO Paul Dunne.

In delivering a market review at Northam’s presentation of spectacular operational and financial results, Dunne said we may expect platinum and palladium to reach parity over time as platinum benefits from the hydrogen economy, towards the end of this decade and into the 2030s.

However, he described current market conditions as being peculiar, owing to the semiconductor chip shortage the automotive industry brought upon itself slowing demand for platinum group metals (PGMs).

Clifford’s analysis suggested that automaker efforts to protect higher margin product lines favoured platinum demand over palladium demand.

“Most importantly, the chip shortage adds less to any platinum oversupply estimates for 2021 than the market might be assuming,” Clifford stated.

Regarding the importance of the automotive sector to the PGM market, Dunne noted: “We only have to look at the percentage of metals employed in autocatalysis to appreciate how important the automotive sector is to the PGM market. “Around 85% of palladium and 90% of rhodium is used in this single application,” he added at the results presentation covered by Mining Weekly.

But automotive production in quarter three of this year has been very badly below par when compared with quarterly global light duty vehicle production for calendar years 2019 to the present, together with quarterly projections out to 2024, as shown on the attached graph.

“What we’re seeing here is a very unusual set of circumstances brought about by Covid-19 and the resultant logistical constraints across the global supply chain,” said Dunne.

During this period, the spot market for palladium and rhodium has been very depressed

But Dunne emphasised that it remains important to realise that the underlying demand for cars by the general public, together with an aging commercial fleet, is creating substantial and as yet unsatisfied demand into the future.

CHIP BOTTLENECK SLOWLY MOVING DOWNSTREAM

“What we’re seeing is that the semiconductor chip bottleneck is slowly moving downstream, in fact to the testing facilities now, as opposed to the production facilities, situated mainly in Southeast Asia and that region is currently experiencing lockdowns associated also with Covid.

“We would expect metal price recover to follow a similar to the recovery in automotive production and this should be led by palladium and rhodium,” Dunne said.

Northam’s longer-term view for its major metals remains largely unchanged with palladium remaining the metal of choice for gasoline engines while rhodium will continue as the only viable solution for the control of nitrous oxide or NOx.

“Demand for these metals will remain strong throughout the decade. Platinum is viewed as an investment case for the moment, offering good relative value. We may expect platinum and palladium to reach parity over time as platinum benefits form the hydrogen economy towards the end of this decade and into the 2030s,” he reiterated.

The emerging energy crisis in China, and to a lesser extent Europe, should, he said, convey to all investors that electrification of mobility through battery electric vehicle technology would face very substantial headwinds.

In the meantime, on Northam’s PGMs front, ruthenium, for fuel cells, and iridium, for green hydrogen, was continuing to grow in prominence, as was its base metal byproducts of nickel, for battery storage, copper across the board, and chrome for stainless steel.

“There is a growing shift towards renewable energy sources, and this will continue to support prices for all the minor metals,” said Dunne.

During Northam’s media roundtable, Dunne elaborated on the semiconductor chip issue and the multifaceted confluence of events that had led to the chip shortage.

The chip shortage, he said, began during the first Covid lockdowns. Because the automotive OEMs believed they were facing long periods of very depressed demand for vehicles and a lot of supply chain orders were cancelled, they effectively cancelled their orders on chip producers.

“The problem is automotive producer are not very big in the chip game. All the automotive producers together in the world only consume a half of the chips that Apple does, for instance.

“Automotive chip consumption is only about 8% of the total world market for chips. We are talking about generic chips ere. They are not the complicated chips. It’s your everyday chip.

“Post the Covid unlocking and the recovery of the situation across the world, there has been a tremendous demand for vehicles for personal transport, which has exceeded everybody’s expectations, including the OEMs themselves.

“Unfortunately, the OEMs do not have the purchasing power in the chip market as they may have perhaps in, for instance, in our PGMs market and other parts of the supply chain. They are behind the eight ball a little bit here in terms of restoring health to that supply chain problem that has been created effectively by Covid.

“Complicating that issue was the fire at one of the big chip producers in Japan and a very harsh winter in Texas, also a big centre of chip production. More recently, in Southeast Asia, where a lot of the chips are tested before release into the market, are lockdown issues inhibiting people’s ability to work,” he said.

The semiconductors are shipped across seas in containers, which have had a threefold to fourfold price increases “and you still have to wait at this price level. If you want them quick you must even pay even more. So, there are huge logistical constraints that have developed across the world in supply chains generally.

“Also, when we all stayed home during lockdown, people surrounded themselves with devices and appliances and many televisions sets, iPhones and iPads were purchased. In fact, there has been an absolute boom in electronic goods, and that is a high source of demand for chips,” he said.