While gold is hitting major highs off the back of Covid-19, it’s not the only commodity doing well. Palladium, mined as a byproduct of platinum, reached record highs earlier this year of over $2,800 (£2,250) an ounce (oz), while platinum has been chugging along below $1,000 an oz. Unlike gold, platinum group metals (PGMs) – as those two plus rhodium are known – have supply and demand forces pulling them in all different directions because of their industrial uses. Both metals can be used in catalytic converters, which are used in car exhaust systems to reduce pollution.
Platinum and palladium can see-saw in value as one is substituted for the other, although palladium has been preferred by carmakers in recent years. Palladium dived in March alongside most commodities but quickly jumped back over $2,200 an oz.
Uranium has also climbed on supply cuts, with much of the world’s output coming from Canada - where shutdowns are in place – and Kazakhstan, where Kazatomprom (KAP) has reduced its workforce. The uranium spot price climbed over $30 per pound (lb) for the first time in four years this month, according to miner Cameco (Can:CCO). Iron ore has also stayed fairly high (down from $90 per tonne to $80) because steelmakers kept operations going in China during the shutdown.
London companies either producing these commodities or just exposed to them have done well this year. The excitement over PGMs is shown by the 75 per cent leap in Sylvania Platinum’s (SLP) share price in the month up to 21 February. The miner has since dropped back, but is still trading almost a quarter above its level of a year ago. Uranium-holding vehicle Yellow Cake (YCA) is trading at a 12-month high, recovering quickly after a fall in early March. Iron ore miners have been weaker, but the majors are also exposed to base metals such as copper and nickel, which are down on overall industrial weakness.
For both PGMs and uranium, continued price strength is uncertain, however, as demand has dropped off alongside supply. South Africa, the world’s most prolific PGM miner, has told miners to suspend operations to limit the spread of Covid-19. This has seen Anglo American (AAL), Tharisa (THA) and Sylvania stop or slow production. Major miners Sibanye-Stillwater and Impala Platinum have also stopped or slowed down mining.
The South African Covid-19 shutdown – now reduced to a mandatory 50 per cent capacity cut – was not Anglo’s first PGM issue this year, however. It ran into trouble well before the lockdown, when a part of its smelter in Rustenburg blew up in February. No one was injured but it will take a year to repair, and the back-up unit also had problems, meaning an 80-day period with no refining. Anglo knocked off around 800,000oz from the PGM unit’s guidance from the year, a 23 per cent cut.
The question is whether this will balance out the demand drop. World Platinum Investment Council (WPIC) research director Trevor Raymond said the impact on car manufacturing in Europe and the US was still unclear, but China’s industry was already back at work. “China was shut down due to Covid-19 far sooner [than Europe or the US], and when they were shut down, they weren't buying palladium or rhodium on the spot market. And that's the period where the prices collapse quite heavily,” he said.
The return of the palladium and rhodium prices to pre-Covid-19 levels fairly quickly came because Chinese manufacturers buy the metals on the spot market, as opposed to the longer-term contracts used by North American and European carmakers.
The uncertainty over the non-Chinese sector comes from a range of shutdown measures in place across Europe. While some are reopening, car sales have also plummeted as potential buyers remain in lock down. Mr Raymond said he was confident in palladium prices staying up because of the new Chinese emissions standards that increase the content in each car. “The increase in demand for palladium wasn't about vehicle numbers and post-Covid-19 they're still implementing their China's six legislation. They still need a lot more palladium, despite lower sales,” he said. The prospect of carmakers swapping out palladium for much-cheaper platinum has been around since the former started to climb in mid-2018. In the short-term, however, palladium remains the favoured option.
Uranium also has demand questions. In its March quarter report, Yellow Cake said nuclear shutdowns were already happening, with French nuclear power output dropping 13.8 per cent in March year on year. The US expects its production to fall 1.7 per cent this year. “Depending upon the rate and eventual level of economic recovery during the year, nuclear generation could be impacted by reduced industrial consumption as well as demand shifts from the residential and commercial sectors,” Yellow Cake said.
