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Platinum vs Palladium: Which PGMs will rally in the green hydrogen boom?

By Indrabati Lahiri

12:00, 11 May 2022

Bank reserves of platinum bars stacked side by side
Platinum demand is expected to increase in the coming years due to the boost in hydrogen catalysers – Photo: Shutterstock

Platinum is seeing a lot of attention lately, especially with the boom in green hydrogen, as the precious metal is used generously in hydrogen catalysers. With the energy transition rapidly advancing and several manufacturers turning towards green energy alternatives, investors speculate that platinum is likely to leave palladium in the dust in the near future.

Global hydrogen demand is expected to increase from about 90 million metric tons annually to 140 million metric tons by 2030 – estimated to be worth about $2.5trn by 2050. Green hydrogen is likely to make up 20% of total hydrogen demand, which will make platinum an even more highly valued precious metal.

Platinum and palladium are both coveted as auto catalysts. However, palladium has recently been trading at more than twice the price of platinum due to the Russian conflict and ongoing supply chain constraints. This has led to platinum being the choice of auto catalyst for most vehicle manufacturers, which has already given it a significant boost. Now, with green hydrogen demand picking up as well, the precious metal is likely to see even more of a lift.

Platinum recovered since April lows

How will the green hydrogen boom affect platinum?

Platinum is key to proton exchange membrane (PEM) uses, which is vital in deriving hydrogen’s zero emissions applications. This technology is used in electric vehicles, in the form of hydrogen fuel cells, as well as to produce green hydrogen itself, in the form of catalysers.

The precious metal has recently bounced back almost 8% since the four-month lows seen at the end of April due to increased demand from the green hydrogen and petrochemicals industry. This has gone a long way to offset the decline in auto catalyst demand, with the Chinese auto manufacturing industry still struggling under the weight of additional coronavirus lockdowns.

Although hydrogen itself is already used as an alternative fuel in several industries due to its zero emissions properties, green hydrogen has recently emerged as the next level of sustainable energy, as no fossil fuels are used in the production process either.

This has led to platinum receiving a sudden boost, which investors anticipate is likely to extend as the world faces an ongoing fuel and energy crisis, with exports from Russia being highly disrupted in the face of additional international sanctions. This leaves renewable energy sources as one of the choices for a lot of industries facing prohibitive fuel costs.

By 2030, it is estimated that annual demand for green hydrogen will be about 30 million metric tons, which would need about 250 gigawatts of hydrogen catalysers. With platinum being a key part of these catalysers, the precious metal will be at the forefront of the “hydrogen revolution”.

By 2050, the total hydrogen supply is likely to increase to about 690 million metric tons, with about 60%-80% of it being green hydrogen at that time, according to a report by CME Group, with the majority of demand coming from electric vehicles.

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Will palladium see the effects of green hydrogen too?

Palladium is also likely to play an important role in the green hydrogen revolution but, as investors speculate, significantly less than platinum due to its considerably higher price. However, this should not completely discourage manufacturers, as palladium works very well with hydrogen because it can absorb the element and has catalytic properties as well.

As such, it can very easily be used in hydrogen storage, purification, detectors and fuel cells, making it a key component in catalysts as well. This is likely to lead to the metal seeing increased demand from both auto catalyst producers as well as EV makers and other renewable energy providers.

However, Russia is a major producer of palladium still, unlike South Africa, which provides most of the world’s platinum. Currently, with the Russian-Ukrainian conflict still raging, Russia is facing wave after wave of international sanctions that are heavily impeding the movement of its precious metals.

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This has been made worse by London and Chicago already banning Russian palladium trading, which has made it much harder for hydrogen manufacturers to access the large amounts of palladium needed for their products, hence leading to a renewed interest in platinum.

Although this may lead to a spike in palladium prices initially, as investors scramble to find other sources of the precious metal, these are likely to stall in the medium term, as supply constraints smoothen out eventually.

Platinum to palladium ratio: Will it recover its 2009 highs? 

 

Platinum to palladium ratio chart Will the platinum to palladium ratio see an increase to its 2009 highs again? – Credit: TradingView

Who are the main platinum miners in the green hydrogen movement?

Anglo American Platinum (ANGPY) is likely to be at the forefront of the green hydrogen movement, being the topmost producer of platinum in 2020, at more than 2 million ounces. Based in South Africa, the company is a subsidiary of international mining giant Anglo American, operating two of the largest platinum group metal mines in the world, as well as mines in Zimbabwe.

Impala Platinum (IMPUY) is also expected to be a key player, with roots in South Africa as well. In 2020, the company produced about 1.31 million ounces. As well as having operations in Zimbabwe, it has also recently taken over North American Palladium.

Sibanya-Stillwater (SBYSF), at 1.08 million ounces in 2020, is also a major player, following the recent acquisition of Aquarius Platinum in Bermuda and Lonmin in London. The company also has gold mining operations as well, which is likely to put it in an even more prominent position on the global precious metals market in the near future.

Although Russian-based Nornickel is also a major platinum and palladium producer, its future at the moment is quite uncertain with continuously escalating international sanctions, especially with London banning Russian platinum and palladium trading recently.

How will the recent platinum miner strikes and UK tariffs affect this move?

Companies, such as Sibanye-Stillwater (SBYSF), have been facing some recent troubles with gold and platinum mine strikes by workers of the Association of Mine Workers and Construction Union (AMCU) over wage disparity.

This has significantly disrupted platinum production from the company in recent times, leading to a further hike in platinum prices, as investors were concerned about potential supply chain disruptions arising from South Africa as well as Russia. However, the situation is reported to be slowly improving as the union finds some progress in its talks with the company.

The precious metal is not completely out of the woods yet though, as the UK has recently imposed tariffs of about 35% on the import of platinum group metals from Russia, in a new wave of international sanctions against the country for its belligerence in the Ukrainian conflict.

This move comes hot on the heels of the London Platinum and Palladium Market (LPPM) banning two Russian state-owned refineries from trading in London and removing them from its Good Delivery List. Hence, this is likely to lead to surges in platinum prices in the near future as well. When combined with the boost from green hydrogen, investors may be concerned about the difficulty of trading platinum and palladium in London.

However, in the medium term, exchanges in Shanghai and other financial hubs that have adopted less restrictive measures so far are likely to step in and fill in the gap left by London exchanges, causing platinum miners to heave a sigh of relief.

Markets in this article

Gold
Gold
2395.31 USD
-4.59 -0.190%
Palladium
Palladium
910.30 USD
-5 -0.550%
Platinum
Platinum
951.25 USD
-16.85 -1.750%

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