INTERVIEW: PGM refineries running close to capacity despite limited scrap supply: Standard Chartered

Despite the limited number of vehicles being scrapped currently, supply of auto catalysts to platinum group metal refineries for recycling remains sufficient and many are still running at close to full capacity, Standard Chartered Bank precious metals analyst Suki Cooper told S&P Global Platts.

Since the second quarter of 2021 chip shortages have disrupted the auto industry, with new car sales being held back leading to second-hand cars being more sought after. This in turn has resulted in fewer vehicles being scrapped.

Once auto production picks up and some of the supply chain issues start to ease, the market is likely to see an increase in platinum group scrap supply, Cooper told Platts in an interview.

"At the moment it's been a little bit more mixed -- had we not had the issues around the used car market being so tight I think we would have seen greater sector supply," the analyst said.

More than 50% of annual platinum demand and around 85% of palladium and rhodium demand comes from the global automotive industry, which uses the metals in catalytic converters to control greenhouse gas emissions.

However, the secondary supply has still been relatively robust and has been unexpectedly strong in 2022, even with the limitation in terms of the number of cars that are being scrapped, Cooper said.

"So it is more of a mixed bag, rather than it being a clear cut 'OK, there is less inventory so scrap has fallen', because I think there is still good supply. With PGM prices being so high, that has attracted recycling. Or potentially we have seen some of the work in progress inventories now have been turned much faster whereas previously it may have been held on for better prices... now it is probably coming back to the market much more quickly," the analyst said.

Substitution

In 2021, China saw very strong imports of platinum. It remains to be seen if the market expects the trend of robust Chinese imports to continue in 2022.

Volumes going into China have been substantial with the highest on record, and the second highest on record over the past couples of years, Cooper said.

"When we look at the demand coming from China, we know that they had initially before the pandemic been working on slightly older engine platforms, which meant that their average loading of all three [platinum group] metals were on the higher side," the analyst said.

The fact that China was able to delay the rollout of China 6/VI emission standards had enabled them to thrift or even start to substitute some of the higher palladium and rhodium loadings, Cooper said.

The Platts New York Dealer rhodium price range rose to $16,600-$16,850/oz for the Jan. 28-Feb. 3 period, from $16,500-$16,800 the week prior.

"Especially on the platinum side, we tend to see that China's response tends to be quite proactive rather than buying after the switching has taken place, they anticipate the potential need for higher platinum loadings will be in the offing," the analyst said.

"They tend to make the purchase a bit earlier [but] the key question will be how quickly will auto production eventually catch up with the level of platinum that already had been imported and we do think we will start to see that recovery taking place this year," Cooper said.

The platinum spot price at 1400 GMT was trading at around $1,030/oz, while palladium stood at around $2,263/oz.

Imports

Cooper said it is likely that the platinum that already had been imported to China had not all been utilized just yet, especially with the jewelry sector slowing down.

"On the auto side, China's demand was doing very well until about September then we started to see something of a slowdown. We think that it's possible that the demand or the imports will remain price elastic," Cooper said.

"We have tended to see on month where there has been a dip in platinum prices or they have been lower year on year or at least lower month on month, there has been a preference to buy the dips and then slow down even when demand starts to pick up," the analyst said.

In terms of volumes, 2021 may probably be a little bit tamer, Cooper said adding that the market was likely to see platinum imports remaining strong in the first half of the year since that's when the prices are likely to be lower.

"In the second half of the year as auto production starts to pick up, PGM prices might tend to start to see more of a slowdown, because we think the demand will remain price elastic and then maybe it will become more driven by end consumer sales when it comes to the auto side," Cooper said.

"Year on year we are anticipating somewhat of a slowdown but then to start to firm again towards the end of the year," the analyst said.