Analysis: Palladium/rhodium/platinum – the great mining conundrum
JOHANNESBURG – South African miners face a conundrum: increasing palladium and rhodium output to take advantage of soaring prices risks depressing the already fragile market for sister metal platinum.
That’s because palladium and rhodium are mined as byproducts, with every extra ounce of the former typically coming with two to three additional ounces of platinum.
Stricter emissions standards have boosted palladium and rhodium consumption in autocatalysts for gasoline cars. By contrast, the backlash against diesel vehicles, where most platinum gets used, has seen the metal languish.
Consequently, some of the world’s biggest platinum miners, including Sibanye Gold and Impala Platinum Holdings, are loath to boost production, even as palladium’s eight-year supply deficit could widen in 2020.
“They can’t increase production because the main metal is platinum and they don’t want to make the price come down,” said Rene Hochreiter, an analyst at Noah Capital Markets.
Platinum has rallied 15 percent this year from a decade low, but demand is forecast to drop in 2020, pushing the market back into a surplus. Palladium has jumped 40 percent in 2019, while rhodium has surged 144 percent.
“Expanding production to try and benefit from higher rhodium and palladium prices can be quite risky,” said James Wellsted, a spokesperson for Sibanye. “Most companies seem reluctant to raise production in South Africa due to the possible impact it will have on the platinum price.”
The rally in palladium and rhodium is extending the life of older shafts along Rustenburg’s platinum belt, but producers aren’t rushing to invest in new mines, according to Johan Theron, a spokesperson for Implats. Boosting production would make the platinum market “even more supplied”, he said.
Given the geological and market restraints, Implats expects output from South Africa’s mines to start declining over the next five years. New projects in South Africa would take years to develop, while those in neighbouring Zimbabwe may be stymied by political and economic uncertainty, he said.
Anglo American Platinum, the most profitable of South Africa’s producers, will make a final decision on whether to expand its Mogalakwena mine at the end of 2020, according to spokesperson Jana Marais.
Unusually, the company’s flagship mine produces more palladium than platinum, but Amplats must weigh the prospects for power supply from South Africa’s troubled state-owned utility before moving forward, she said.