Anglo’s David Jollie: Electrification is Not Just a Battery Question

At the recent Mines and Money conference in New York, David Jollie, Anglo American’s (LSE:AAL) manager, market analysis, for platinum-group metals, took the stage to discuss platinum as a potential investment opportunity.

Speaking to the Investing News Network (INN) at the sidelines of the show, Jollie shared his thoughts on current supply and demand dynamics for platinum, touching on the rise of electric vehicles and fuel cells as a potential demand source.

Commenting on the potential for increasing electric vehicle production to curb platinum demand, Jollie suggested that this is a longer-term issue.

“Electric vehicles … I think are a longer-term call. At the moment, [the] number of electric vehicles, battery electric vehicles, in pretty much every country is less than 2 percent of sales. It’s small numbers, and with growth in terms of the number vehicles sold, you’re actually seeing more conventional vehicles sold despite that growing market share,” he said.

He also noted, “even within that, the question of electrification … is an interesting one because it’s not just a battery question, it’s a hybrid vehicle question and it’s a fuel cell question. Those will have very different outcomes for platinum and for the other precious metals as well that we look at.”

Watch the interview above for more insight from Jollie on the platinum and palladium markets. The transcript is available below.

INN: We are here at Mines and Money in New York, and your talk this afternoon will focus on platinum as a potential investment opportunity. For those who may not be familiar, can you give a brief rundown of what the market looks like right now?

DJ: We can start on the supply side. Platinum is quite unusual compared to a lot of other metals — [it] very heavily depends on a few locations where it comes out of. The bulk of it comes out of South Africa, and it’s the primary produced metal along with palladium, rhodium, a little bit of chrome, a few other things as well, nickel, copper … but most of it is coming out of South Africa. A lot out of Russia, out of the polar region, where it’s a by-product of palladium, and then little bits out of North America, out of Colombia, out of Zimbabwe as well. Supply side therefore [is] relatively constrained by the number of sites and certainly constrained by the recent relatively low price environment. So CAPEX has been relatively low, production has been relatively flat over, say, the last five years. I think if you’re going out over the next five years, you’d expect still relatively flat primary production.

On top of that, you have a recycling market that is kind of easy to forecast in a sense. These are high-value metals, platinum particularly. Therefore where you can access it in terms of recycling, you do. So a lot of that’s in terms of spent, used autocatalysts — catalytic converters for cars, some jewelry recycling, some industrial recycling. You see supply sort of edging overall between those two gently higher, but not really doing anything exciting.

On the demand side, we see three big applications and a fourth of interest. The three big applications are the car market, where platinum is used in catalytic converters to clean up car exhaust. And that’s maybe 40 percent of demand in a given year. We see the jewelry market, where it’s probably best known, and that’s probably about 30 percent of the market — a lot of that in China for platinum jewelry, a lot of it for bridal jewelry, but also in the US and in Europe as well, and increasingly in India. And then on top of that, you also see a lot of what we call industrial applications, which is pretty much a black box of everything else you can imagine, where platinum’s used for its ability to withstand high temperatures or its catalytic activity in a whole range of applications in the glass sector, in the petroleum sector, a whole range of other things.

Finally, it’s valuable, so you see it in the investment sector as well. People want to own ETFs. They want to own physical products as well, whether that’s coins or bars, all sorts of things. The demand side [is] much more mixed, I would say. The industrial demand [is] pretty strong, investment demand [is] actually pretty strong, although quite variable depending on where prices go. But on the other side, the jewelry [is] up and down. Some markets like India [are] doing really well, China [is] doing I think less well. And [there’s] really a whole range of things going on behind that, it’s not about the popularity of the jewelry, it’s the industry itself, the jewelry industry. The car industry, we’re pretty highly tied to — in platinum, it’s used in diesel cars. So what you’ve seen is a lot of skepticism about the environmental performance of diesel cars, and that’s had a negative impact I think on sentiment and probably therefore on prices as well.

INN: So the main driver right now behind demand is the role of platinum in vehicles. There have been some concerns that demand will fall as electric vehicles become more common. Is that something investors should worry about right now, or would you say that that’s more of a long-term concern?

DJ: I think you have two different things going on at the moment. One is what’s happening with diesel. So if you look at a gasoline car, typically that’s a palladium/rhodium catalyst, although you can use platinum. If you look at diesel, it’s a platinum-rich catalyst. Where we see diesel market share falling [is] for light-duty vehicles in Europe, that’s a negative in demand now. It’s relatively limited in scope, but it is a negative and it’s much more negative in sentiment terms. We don’t see that as necessarily a massive issue going forward. We can see some substitution between these metals, and we can see other things going on as well — growth in heavy-duty trucks using diesel engines, using platinum catalysts. So there’s a little bit of concern short term about what happens in diesel generically. Electric vehicles as you say, I think, are a longer-term call. At the moment, [the] number of electric vehicles, battery electric vehicles, in pretty much every country is less than 2 percent of sales. It’s small numbers, and with growth in terms of the number vehicles sold, you’re actually seeing more conventional vehicles sold despite that growing market share.

For us, we see that as a longer-term question, and then even within that, the question of electrification, which is what I’m here really to talk about, is an interesting one because it’s not just a battery question, it’s a hybrid vehicle question and it’s a fuel cell question. Those will have very different outcomes for platinum and for the other precious metals as well that we look at.

INN: Right — in your talk you’ll also be going over the role of platinum in fuel cells. From what I understand, currently fuel cells account for relatively little platinum demand. But is that — is demand seen growing moving forward?

DJ: Yes. If we look at our market, platinum production per year and demand per year is roughly 200 tonnes. Using fuel cells might be one time, might be a couple of times, but it’s a pretty small segment. If it grows, it will grow quite dramatically, so we can look at, maybe in the future, 10 grams of platinum per fuel cell vehicle. If you multiply that up, if you get to 10 million vehicles a year, you’re getting substantial amounts of metal. If you go to 50 million vehicles a year, which I think is a massive challenge and that’s not a forecast we would have, then you’re looking at it saying this will be a very large amount of platinum. That has some interesting challenges for the industry to say, “how do we produce that?” and “what do we do with by-products?” There’s a lot of things around there. 

So it’s a longer-term question, and I think we should always be — I have to be careful not to use the word “cynical” — skeptical about these technologies, whether that’s batteries or whether that’s fuel cells, and say, “how do we see these things happening?” They can happen, they can become commercial, but there are a lot of steps to get there and they’re not trivial steps. If we want fuel cells to happen — we ourselves do market development — we would invest in a small number of hydrogen refueling stations. We’ve invested in technology to try and get fuel cells to be more easily commercialized. That’s kind of the way we had. So it’s an interesting story. I think it’s one where people have a little bit of skepticism because they’ve heard about fuel cells for a long time. Certainly in my space. We don’t want to say this is something that will happen because doing that doesn’t mean it’s going to happen. What we want is to try to make it happen if we can.

INN: So lots of potential for fuel cells. I do know that some people have also been talking about replacing platinum in those — is that a concern?

DJ: I think it’s something we shouldn’t take lightly. If you look at the idea of what we call thrifting first off, which is reducing the amount of metal but without changing or without worsening performance. That we would expect to see, and so if you look at a fuel cell car today, it might have, say, 50 grams of platinum, and that’s not commercially viable in my view, 10 grams is. We can see ways to get to that.

What you can see though, is if you want to have a low-temperature fuel cell, which is what a car is — you don’t want to turn it on and then take 25 minutes for it to start, you want it to start immediately. So it’s got to work at low temperatures. For that you need a catalyst, and platinum and the platinum-group metals are really good catalysts in that sort of environment. They’ve got really good durability, very good activity. They start early, they start at low temperatures and they work for a long time. From that perspective, I don’t see in this application platinum being excluded.

I think if you look at some higher-temperature applications, say, maybe in a building, where a fuel cell might be on all the time, there you may be able to get away without platinum. But in the car sector, which is I think the biggest area of growth for us, then I think it’s really hard to see platinum being taken out. It might be reduced, absolutely. I think that will happen.

INN: We’ve been talking about platinum, but it’s difficult to mention platinum without also talking about palladium. Palladium is doing well right now, but assuming we get a turnaround in platinum prices, where will it stand?

DJ: I think you have to look at the supply side and the demand side. The supply side is pretty similar for both metals. There’s more palladium coming out of Russia compared to South Africa, where most of the platinum is coming out of, but the supply side looks quite similar. The demand side is quite different though. For palladium, about 85 percent is going into catalytic converters on essentially primarily gasoline cars. So one big application — a lot of other interesting applications, but the way I want you to think of it is most of this is the car sector. Clearly therefore the number of cars and the type of engine that car might have, or the type of powertrain is a real issue.

What we have seen is prices going up quite dramatically over a period of time, and really this is only the second time in history where palladium has traded above platinum. At some point, that ought to incentivize car producers to say, “how do we put more platinum back into a gasoline catalytic converter instead of palladium?” I think the market’s view in general is if you’re looking at a year, two years, three years, at some point you’ll see some switching back of platinum going into catalytic converters, and therefore platinum probably trading at a premium to palladium. But I don’t think that’s a short-term story. That’s not this year, it’s not next year, but there’s certainly a lot of switch between those two where you can use platinum in applications where palladium is used today.

INN: Looking a little shorter term just to close out, where can investors expect to see prices for these two metals go this year?

DJ: We tend not to forecast prices themselves, but we can talk about the environment we’re in. So certainly looking at where the dollar might go and looking at particularly where gold might go. That seems to be a little bit becalmed. That tends to give you an idea where platinum might go particularly, there’s a relative comparison between the two. I think what we do look at … if you see production where it is today, and you think it has to stay at that level, we’re not seeing the CAPEX we need to see, so you have to imagine there will be higher prices at some point. In the short term, I think it’s — you can take your own views on that, but in the longer term, you have to expect to see either higher prices or I think lower production out of lower primary production.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.