Palladium prices have fallen sharply from last month’s record highs, but the metal’s long-term potential will continue to drive prices higher for years, amid an economic downturn, according to one mining executive.
In a recent interview with Kitco News, Michael Jones, president and CEO of Platinum Group Metals (NYSE: PLG TSX: PLG), said that his company continues to move forward with the development of its South African Waterberg PGM project as he sees further growth potential for palladium.
Jone’s comments come as palladium prices have fallen nearly 13% from March’s historic highs. June palladium futures last traded at $1,376.30 an ounce.
In particular, Jones said that demand for palladium will remain strong even if auto sales in the U.S. and China continue to slow. He explained that automakers are having to add more of the precious metal to catalytic converters to meet tighter emission standards.
Although considered a precious metal, palladium’s primary demand comes from the auto sector as the metal is used in catalyst converters to reduce emissions from gasoline engines, the majority of vehicles sold in North American and China. Platinum is the critical metal used to reduce emissions in diesel engines, which were the most popular in Europe.
“Even if global auto sales cool, [amount of palladium] per car is going up dramatically and that is the point everyone is missing,” he said.
Quoting auto industry research, Jones said that in China alone, an additional million ounces of palladium is going to be needed by car companies to meet emission standards in the next three years. According to research from BASF, the world’s leading supplier of catalysts, demand for palladium in China is expected to grow from 2.332 million ounces to 3.429 million ounces by 2022.
But it’s not just the demand side that will continue to support prices through the next few years.
Jones added that the “demonization” of diesel engines, particularly in Europe is reducing demand for platinum, is prompting some miners to reduce their production to cut costs in a weak price environment. However, palladium is mined as a byproduct in mostly nickel and platinum mines.
“You have platinum producers cut production and that is tightening the palladium market regardless of what the price of the metal does,” he said.
Jones said the current environment has created the perfect conditions for the Platinum Group Metals as it moves forward with its palladium-dominant project in South Africa. He explained that the Waterberg project as a measured and indicated resource of 26.24 million ounces of PGM metals and gold. About 60% mineralization is palladium, 30% is platinum and the rest is in gold with a little rhodium.
Jones said that the company, which is backed by Impala Platinum Holdings and the Japan-state owned company JOGMEC, is looking to make a construction decision this year and forecasts it would take about three years to build the mine.
“We’re not concerned about short-term price volatility and are not changing our strategies at all,” he said.