What are PGMs?
PGM stands for Platinum Group Metal, which typically includes six closely related metals that share similar chemical properties and are often found together in mineral deposits. The three most common platinum group metals are Platinum, Palladium and Rhodium.
What are PGMs used for?
PGMs are used in a variety of applications. The most common use is in vehicle exhausts to reduce emissions. This is achieved by converting harmful pollutants into less harmful gasses. PGMs are also used in a variety of electronic devices, such as hard drives, fuel cells, and solar cells. Metals such as Platinum are also frequently used in jewellery and medical equipment.
Who produces PGMs?
South Africa is the world’s largest producer of PGMs, accounting for over 60% of global production. The second-largest producer of PGMs is Russia, contributing around 25% of global production. While Zimbabwe, Canada, and the United States are also significant producers of PGMs.
The largest PGM miners in South Africa are Anglo American Platinum, Sibanye-Stillwater, Impala Platinum, and Northam Platinum. These four companies account for over 90% of South Africa’s PGM production. These companies also play a vital role in the South African economy, employing tens of thousands of people and generating billions of dollars in revenue each year.
PGM prices have fallen in 2023
In 2023 the PGM basket price has fallen 34% year to date, from USD 1 914oz to USD 1 259oz as of the 9th of October. While most PGM metals have fallen in price in 2023, Rhodium specifically has fallen from USD 12 250oz to USD 4 100oz, a 67% decline, over the same period.
The decline in the PGM basket price has been driven by a number of factors. One of which is the global economic slowdown, which has dampened the demand for PGMs. The slowdown is the result of rising inflation and interest rates, placing the budgets of consumers and businesses alike under pressure. With less disposable income and a higher cost of borrowing demand for new vehicles has been slow to recover from its pandemic supply chain issues and is now expected to fall.
In recent months, the US dollar has been strengthening against other currencies. This makes PGMs, which are traded in US dollars, more expensive for buyers outside of the United States. Lastly, electric vehicles (which don’t require PGMs in their construction) are slowly eating into the demand for traditional vehicles as regulators push for their usage over the coming decades.
These depressed prices could offer a buying opportunity.
As value investors, we at Integrity Asset Management are always looking for businesses that are underappreciated by the market. With the abundance of negative news and sentiment around South African PGM miners we believe the market has already priced in much of the negative information.
In fact, we believe PGM prices may have a near term tail wind as global growth remains resilient or even improves over the next 3-to-6 months. While in the long-term current share prices factor in extremely negative conditions to persist into perpetuity, which we feel is unlikely and that a recovery in demand should take place in the not-too-distant future. While we wait for the economic cycle to turn, we look to invest in the PGM miners that have strong balance sheets and robust underlying fundamentals that are well positioned to weather the short-term downturn. This combination of factors is what provides us, investors with our eye on the long-term, with attractive opportunities to steadily grow our client’s wealth.
Are you interested in finding out more about PGMs and how we invest in them? Connect with Integrity Asset Management and let us help you navigate your investing journey.