Platinum group metals, especially platinum and palladium, have for long depended on the automotive industry as their main demand driver. Internal combustion engine vehicles use these PGMs in catalytic converters, but the rise of hybrids and EVs has eroded some of the demand for platinum and palladium.
In 2020, green hydrogen emerged as a promising new demand driver for platinum and other PGMs. However, this renewable energy and the related energy storage segment haven’t seen explosive growth as had initially been forecast. This has reduced the amount of PGMs used in the industry, and miners of these metals are tamping down their expectations that PGM prices could be supported by these industries.
The tech sector, particularly the AI industry, is now emerging as a new avenue through which demand for PGMs can grow at a decent pace over the coming years or even decades.
In the past two years alone, the World Platinum Investment Council (WPIC) estimates that incremental demand for at least half a million ounces of PGMs has been created within the tech sector in fields like semiconductor manufacturing, optical networks and data storage. The specific PGMs being used are iridium, ruthenium and platinum.
While the first two are mined in very small quantities, their rising demand bodes well for the entire PGM basket. Already, platinum has seen growing demand within the fiberglass industry since this metal is critical in equipment used for the production of microprocessors.
The beauty of this use of platinum is that one piece of equipment coated with platinum creates ongoing demand because the coatings have to be reapplied periodically. This is in contrast to the use of PGMs in autocatalysts, a one-off scenario in which an automaker buys PGMs to make the autocatalyst, and once the vehicle leaves the assembly line, that is it until another vehicle is assembled.
WPIC forecasts that the demand for PGMs like platinum in the glass industry could experience 83% growth in 2026, which would support prices to a reasonable degree.
As these new demand drivers emerge, especially in the tech sector, PGM miners are wary of quickly ramping up their production to address this demand and yet they aren’t sure how long it will last. They have memories of previous demand spikes that motivated supply growth, only for the demand to collapse and leave miners struggling to convince investors to stay at a time when the firms appeared “uninvestable.”
Major PGM producers like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) now have to think carefully about expanding their production capacity while also maintaining a healthy balance sheet so that investors aren’t spooked if prices decline after a period of dwindling demand.
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