The future of Platinum Group Metals in the context of the SA economy

Pretoria East September Newsletter 2021

The exchange rate has, up to now, benefited from record-level resource exports and this has led to a strong current account. Platinum Group Metals (PGMs), meanwhile, are a significant contributor to the export figures. The question, though, is what the future holds for PGMs when the use of these metals is jeopardised by sales of electric and hybrid-electric vehicles at the expense of petrol and diesel vehicles (the largest consumers of PGMs).

SA's exchange rate and current account are currently benefiting from record mineral sales and export figures

Recent mining and production figures drawn from Stats SA indicate an overall record level of mineral sales, amounting to almost R77 billion in April 2021.

Figure 1: Total SA mineral sales
Source: Stats SA

A substantial proportion of these minerals were exported and SA's export figures attained a new high of over R160 billion. Most of these exports are destined for the US and China. SA's current account also benefited from this phenomenon, reaching R267 billion for the first quarter of 2021. This came on the heels of the country’s long negative current account history prior to 2020.

Figure 2: SA exports (R mil)
Source: TradingEconomics.com

Figure 3: SA current account (R mil)
Source: TradingEconomics.com

The international demand for commodities, in turn, creates a demand for the emerging market currencies used to purchase these commodities. Figure 4 presents the ratio of the South African rand to other emerging market currencies, and the influence of these strong export figures on the rand’s over-performance is obvious here.

Figure 4: ZAR as compared to emerging market currencies
Source: Standard Bank Research

SA's resource basket has seen some significant changes since 2015, and the global pursuit of clean energy is benefiting PGMs

With PGMs contributing close to 50% of SA's current resource basket, this group of metals is very relevant to the future of the SA economy

PGMs, which consist mainly of platinum, palladium and rhodium, are currently used in the catalytic converters of petrol and diesel-powered vehicles. As hybrid and battery-powered vehicles increase in popularity, the sales of petrol and diesel vehicles are expected to decline. Such a decline is likely to be accompanied by reduced demand for PGMs. SA is the largest supplier of PGMs in the world, a fact that further emphasises the relevance of these metals to our economy.

Figure 5: Annual vehicle sales per category
Source: Anglo American Platinum Results

It is possible that PGMs will, in future, be used extensively in the hydrogen economy.
A hydrogen economy is considered by many to be the next step in, and an alternative to, the current fossil-fuel-based energy system. Hydrogen, which is produced from renewable sources, is employed to transport energy which is then generated by means of hydrogen fuel cells.

Such hydrogen fuel cells generate electricity through a chemical reaction, where hydrogen serves as the fuel and platinum as a catalyst.

According to Mårten Wikforss, a consultant at Sweden's Powercell, "The heavy vehicle market offers the greatest initial opportunity for hydrogen fuel cells."
Batteries consume too much of the available space in trucks and take hours to charge, while longer distances pose a major challenge for battery-powered vehicles. It is here that hydrogen-fuel cells can play an important role.

In addition to their use in road vehicles, hydrogen fuel cells can also be used as an alternative energy source in ships and trains.

Figure 6: Transportation applications for hydrogen cells
Source: Anglo American Platinum Results