Platinum group metal sector’s woes get worse after prices plummet

What do South Africa’s platinum group metal (PGM) sector, China’s property market and the National Treasury have in common? Well, 14 August may well be remembered as “Black Monday” in South Africa’s PGM sector, when companies saw their share prices tank by as much as 9%.

It was the same day that news emerged that China’s largest private real estate developer, Country Garden, sought to delay payment on a private bond for the first time.

That has serious consequences for the Chinese and hence the global economy and the demand for commodities, including PGMs, at a time when the Asian Tiger is on the prowl for electric vehicles (EVs) that don’t need platinum and its close relations.

The palladium price also tanked that day by more than 3%, extending its losses for the year to more than 30%.

What is the upshot for National Treasury and South Africa’s economy more widely?



Well, according to Treasury data, as a volume of provisional corporate income taxes paid by three broad sectors — finance, manufacturing and mining — the latter’s share soared from less than R10-billion in 2015/16 to over R80-billion in 2021/22, and was still around R80-billion in 2022/23, when it accounted for nearly 30% of such revenue streams.

“Corporate income tax collections from mining remain large in historical terms due to elevated — although declining — commodity prices,” the Treasury noted when the Budget for this financial year was unveiled in February.

That’s a windfall the Treasury can’t count on this year, when economic growth is expected to slow to perhaps 0.3% from 1.9% in 2022. And PGM prices are a big part of this picture. They are way down, and so the profits and taxes paid by the sector this year will be far less.

To wit, as mentioned, the palladium price is down by more than 30% in the year to date. The rhodium price has fallen by about 65% to just over $4,000 an ounce. In April 2021 it was almost $30,000 an ounce, making it the most valuable precious metal in recorded history. And the platinum price has toppled by almost 16% over the same time period.

This relentless decline has been driven by a number of factors, including slower global economic growth. Things are not as bleak as they were a few months ago, but the International Monetary Fund still projects the post-pandemic global economic expansion to stumble this year to 3% from 3.5% in 2022.

This is not good news for a sector that relies heavily on providing the key ingredients for emissions-capping catalytic converters for internal combustion engines in motor vehicles, a product that requires a robustly growing global economy to pave the road to continued demand — a road already marred by emerging EV potholes.   

Platinum can be used in fuel cell EVs, and though growth is seen on this front, in 2022 they accounted for less than 1% of global EV sales.

So, a perfect PGM storm was brewing when the news about China’s Country Garden broke on 14 August.

“Analysts warned that a rise in default by trust companies, also known as shadow banks, which have strong ties to the domestic property sector, will further weigh on the world’s second-largest economy,” a Reuters report said on the day.

Contagion risks

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.