CPM issued the below Market Alert on Platinum’s Surpluses and the fantasies of deficits now and in the future to its clients on 18 April. We normally limit distribution of Market Alert to CPM clients, but are sending this report more broadly.
People ask CPM how it is possible that platinum prices could have fallen by more than half since 2008 while there have been large and persistent deficits of newly refined platinum compared to demand.
The answer is simple. This has not happened. There have been no large and persistent deficits. The platinum market has been in a heavy surplus balance throughout most of the past half century, in fact, surpluses that continue into 2024.
The idea that the platinum market has been in a deficit is a marketing construction. It is not real.
The implications for misdirecting private and government investments into platinum mining are discussed at the end of this Market Alert.
The first chart here shows CPM’s estimates of platinum’s market balance, surpluses and deficits since we began researching this market in the late 1970s. It compares CPM’s estimates to actual prices. The prices track the supply and demand fundamentals well, and the fundamentals explain the levels, trends, and changes in prices.
One needs to know who bought the surpluses in the late 1980s and early 1990s, and who bought the surpluses in the period after 2001 to understand the difference between the flat price response in the 1980s and 1990s and the surge in prices after the turn of the century. Knowing that, the relationship between surpluses and deficits and prices is clear.
The second chart here shows CPM Group’s analysts intermediate term (two to three years) buy and sell recommendations since we began making these calls in December 1980. (These all are from published reports from the times they were made, and are not backward looking.) These projections, price expectations, were based on our estimates and projections of supply and demand.
The chart shows a remarkable track record. This suggests that our supply and demand estimates and projections, upon which these price projections were based, most likely were relatively accurate. Otherwise our price expectations would have been off.
In other words, if we had consistently written that we saw large deficits, we would have been projecting higher platinum prices than ultimately transpired. Then we would have had to explain how platinum prices could be so low in the face of persistent deficits. Since we did not estimate nor project persistent large deficits, we have not had to try to justify persistent bullish price expectations.
Thus, the perceived discrepancy is explained away by the fact that there have not been large and persistent deficits of platinum supply over fabrication demand. The surpluses CPM has in its data are copacetic with how prices have performed in recent years, and indeed since the early 1980s..
There are other fantasies that lead to overly optimistic platinum price expectations, discussed on the following pages. The CEO of one producer said in 2022, “We’re looking at around 2.5-million ounces of PGMs by 2040 and breaking that down, you can allocate about one million ounces to fuel cells, 500,000 oz to 700,000 oz to electrolysers and another 700,000 oz to a million ounces that could potentially find its way into the storage market.”
Future Uses That Never Arrive
One of the most persistent myths that has clouded platinum investment decisions has been that fuel cell powered vehicles will use enormous amounts of platinum. In 1980 the South African producers and their marketing agents were predicting that by 1988 more than 300,000 ounces of platinum would be used annually in fuel cell powered vehicles.
The chart below shows that wildly over-optimistic projections have continually flowed forth from South African producers since then. One danger is they may have believed these dreams all along. By 2022 the projection – one cannot say expectation – was that fuel cell powered vehicles would be using one million ounces of platinum by 2030.
The little black bars show how much platinum CPM estimates has been used annually since the late 1980s, with our projections out to 2030, when we think maybe 100,000 ounces may be used. Meanwhile, most fuel cell manufacturers report that they can engineer platinum entirely out of their fuel cells.
The rationale of these unfulfilled projections has been that fuel cells would compensate for the loss of auto catalytic converter demand as the world transitioned away from petroleum-derived fuels. That has not happened and seems unlikely to happen.
The International Energy Agency, CPM Group, and others do not expect fuel cell vehicles to be commercially viable for most on-road vehicle applications. Intra-city buses, airport tarmac, warehouses, and other fleet applications may use fuel cell vehicles.
At present more than 90% of the fuel cell vehicles in operation are intra-city buses, and most of those are in test cities in China.
CPM does not expect light duty fuel cell vehicles to become a significant number until after 2040, and even then to account for fewer than 1% of annual light duty vehicles out to 2050.
The chart below is from the IEA’s 2021 report on the role of critical minerals in the clean energy transition. The yellow bars show the power generation the IEA would project coming from fuel cells by 2050 if the governments and corporations lived up to their Paris Accord agreements. The orange bars show what the IEA projects fuel cells might do if the trends of the past 16 years are maintained. This is the ‘more realistic’ scenario CPM uses. The role of fuel cells is small in both scenarios, and only begins to emerge in the march up to 2040 and 2050.
Platinum producers claim that if hydrogen can be safely and cheaply shipped, stored, and distributed fuel cell vehicles will take off.
Auto manufacturers say that if you can get hydrogen shipped, stored, and distributed cheaply and safely they will produce hydrogen-engine ICE vehicles. Toyota unveiled a V-8 hydrogen ICE engine earlier this year, and has been working on them for decades. So too, have Ford, BMW, and other auto manufacturers. Hydrogen engines are cheaper, proven technology, and require no PGMs.
The conclusion is that fuel cells are unlikely to use large volumes of platinum in the future.
And Now, Electrolysizers
The promise of fuel cell vehicles has worn thin. More ideas are needed for future platinum uses.
The potential for safe and cheap distribution of hydrogen rests primarily on Liquid Organic Hydrogen Carriers.
CPM has identified a company with patented research showing certain LOHC chemicals capable of carrying sufficient levels of hydrogen to be usable in vehicles and other motive transportation. The research needs to be extended. Other companies meanwhile continue to struggle with chemicals that do not carry sufficient hydrogen to be useful for transportation, but only for stationary storage of hydrogen and which have other detrimental characteristics ranging from costs to toxicity to supply.
Assuming that LOHCs can be commercialized, the need for lower cost hydrogen production to be transported to users becomes more critical. The best sources are hydroelectric plants, solar and wind farms, and other renewable energy sources. The concept is to use excess electricity generated during off-peak and other periods to electrolysize water, reducing it to hydrogen and oxygen.
The platinum industry has focused on the potential use of platinum, iridium, and ruthenium in the electrodes that would be used. Several PGM fabricators have moved to develop manufacturing capacity to make electrodes. There have been very few companies moving to develop actual plants for the electrolysis of water, however. The IEA projects little growth in this industry even to 2050, as the chart below shows. And, while the platinum industry has touted the potential use of platinum and other PGMs in electrodes, the relative costs of stainless steel and titanium electrodes compared to platinum and PGM electrodes, measured against the technical performance in a cost-benefit analysis, suggests non-noble metals will be used. Earlier this year one company that is developing the capacity to make electrodes announced that it can substitute lower cost ruthenium for iridium in its electrodes while another announced that it can move away from PGMs entirely.
Conclusions: Platinum Fantasies Can Lead To Losing Investments
CPM projects that by 2050 most vehicles will still be petroleum-product-burning ICE engines or hybrids, still using platinum, palladium, and rhodium in auto catalysts to clean exhaust. The IEA conclusion is that by 2050 the major energy related use of PGMs will still be catalytic converters. CPM’s projections are that petroleum based ICE engines will be suffering market share losses to EVs and other technologies, but auto catalysts will still be 35% of annual fabrication demand in 2050, vying for first place as the largest end use for platinum with jewelry.
Meanwhile, believing that there are large and persistent shortages of platinum can lead to bad investment decisions on the part of producers, investors, other financing sources, and governments. There are high costs to making financial decisions based on a desired future rather than a realistically probable future based on an erroneous understanding of present market conditions and probable outcomes.
When there is a disconnect between market prices and an analysis of the market, especially an analysis by an interested party with decades of misreading a market, it is more likely the analysis is “wrong” than the market price. The market price typically is better and more accurately informed than partisan analyses.
The costs are high when there is misallocation of private and government expenditures based on an inaccurate current market view and hopes of platinum prices springing higher when ‘the market wakes up to a shortage.’
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