Green Rush

The platinum group metals (PGM) basket is under strain, but that’s due more to a decline in aggregate car sales rather than a shift toward electrification, says Matt Watson, founder of Precious Metals Commodity Management LLC., and host of Green Rush — a program that focuses on precious and critical minerals as they impact the clean energy transition.

In mid-March Watson spoke to Jonathan Butler, head of business development at Mitsubishi Corporation. 

Platinum, palladium and rhodium are key metals used in autocatalysts, or catalytic converters, which reduce tailpipe emissions in vehicles. Palladium is typically used in gasoline engines whereas platinum is more often used in diesel engines. 

Watson noted aggregate car sales are down about 23% and haven’t hit 93 million since 2017.

“Vehicle sales I think are the lever that's hurting the PGM basket at this point, more so than the EV penetration rate,” he said. 

Butler agreed, listing the factors that have resulted in lower sales: the slowdown in China, the covid-19 pandemic, the semiconductor shortage, and now, higher interest rates deterring new car buyers. 

“There's something like a 10-million-unit vehicle delta between where things should have been had we not had the pandemic and the chip crisis and everything else, and where we actually are now,” he said. “Those are vehicles that just simply weren't made and incidentally that has quite an influence on the long-term recycling market because there's going to be a missing generation of vehicles that aren’t coming through the recycling stream.” 

Lower internal combustion engine (ICE) sales have had an impact on palladium and rhodium, which have accumulated surplus and whose prices have fallen over the past two years. Eighty-five percent of demand for these metals is from gasoline and diesel engines. 

“When you look at the long-term outlook palladium and rhodium are really going to be challenged,” Watson said. 

Butler agreed, but warned not to discount the risk of supply shocks to PGM mines in South Africa, which are becoming depleted and face issues around labor and power. 

He also said, “I think we've still got a little bit of life in the old internal combustion engine for quite a bit more time, in particular with in relation to increased hybridization.” 

Hybrid vehicles, like ICEs, require autocatalysts. 

Watson pulled up a chart showing up to 125 million troy ounces of material from autocatalyst recycling could hit the market by 2050 — the equivalent of 13 to 15 years of supply. “The market needs to develop more applications for palladium to take up this slack,” he said. 

Watson and Butler both see increased demand for platinum, iridium and ruthenium, which are critical materials for the hydrogen economy — fuel cells and green hydrogen electrolyzers. 

There is a disconnect between policy makers desire to go green and the amount of critical minerals needed to make it happen, noted Matt Watson, Founder, Precious Metals Commodity Management LLC. 

On Thursday Watson recorded an episode of Green Rush with guest Paul Harris, Kitco correspondent.

To compound the problem is that the current supply base for these markets are small, resulting in large price swings. 

Lithium is a notable example: the metal hit a staggering $80,000 per tonne at its peak consequently crashing near 90% at the start of this year. Commodities are cyclical, but critical minerals have seen the patterns accelerated due to new markets and elevated demand. 

"These are relatively low volume markets," said Harris. "Somebody's going to open a new gigafactory or somebody is going to bring a new mine on stream and that's going to flood the market with surplus capacity, so the price is going to crash—rinse and repeat."