New York — Palladium prices are unlikely to fall dramatically any time soon, with solid supply/demand fundamentals acting as supportive factors for the already elevated price, according to producer Sibanye-Stillwater.
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Talking on the sidelines of major mining event Indaba, Sibanye CEO Neal Froneman said this week that he was reasonably bullish on the metal's outlook.
"I don't think it's a ticking time bomb...the market is in fundamental deficit and there are no real alternatives to substituting it in the short term," Froneman said. "So I think the price is robust, it may go up some more, it may go down a bit, but I don't think it will move around much from around these levels."
Palladium is a key ingredient in gasoline engine autocatalysts, which lower emissions. Demand for the metal has increased in recent years, due to tight physical supply and higher demand for gasoline engines. The main driver for this was the 2015 'Dieselgate' scandal, which rocked the auto industry and caused demand for diesel engines to fall sharply in Europe.
"The reason people think the bubble is going to burst is because in the past when [the market saw a higher] price you had demand destruction, but that occurred in a very different environment, when environmental regulation was much more flexible, you didn't have the issues around 'Dieselgate' and CEO's being sued and car companies paying big fines, so that's different," he added.
Industry lobby group the London Bullion Market Association said that the analysts that it surveyed this week believe palladium could hit a high of $3,200/oz in 2020.
"Palladium has already carried on where it left off in 2019, hitting a series of highs and smashing through the $2,500/oz ceiling in January. With the trading range forecast as $1,700 (80% of the average price), it's a case of fasten your seat belts, we could be in for a bumpy ride in 2020," the LBMA said in its precious metals survey published this week.
On the subject of environmental, social and governance, or ESG, Froneman said it is likely to continue to be a hot topic in 2020.
"I wouldn't want to be a coal company anymore, and in fact we did a few years back look at getting back into coal. Politically is was difficult in South Africa, when we made a decision to move aggressively into PGMs, coal and PGMs don't go together — you can't claim to be environmentally sensitive and responsible and mine something like coal, very difficult," he said.
The coal industry is struggling to find its place in a finance world increasingly focused on ESG. Though the use of coal is falling in some parts of the world, particularly for power generation uses, it is increasing in regions such as Asia.
"Certain banks have made it very clear they will not fund coal initiatives. I'm sure you'll still get funding but it's going to increase the cost of that funding, and you're going to have a limited investor base and it will get harder and harder," he said.
According to its own website, Sibanye-Stillwater is the world's largest primary producer of platinum, the second-largest primary producer of palladium and a top tier gold producer. It is also the global leading recycler and processor of spent PGM catalytic converter materials.
Turning to the future of the company, the CEO said that next investments could be in the battery metal space.
"About a year ago we bought a British company called SFA Oxford — which are experts in electric power trends for cars — with a view to understanding the battery metals that are going to be [powering the] future. They are complementary to PGMs, so we are considering somewhere in the future also stepping in to battery metals; copper, nickel, graphite and lithium."
One area that the CEO was 100% not steering his ship was into the world of Exchange Traded Funds.
"I think ETFs have a role to play. Would I spend money creating an ETF? I don't think so. I've seen ETFs be very useful in gold, but you've got to remember they often do create supply at the wrong time, sometimes. Investors will drive investment demand when it makes sense. So creating ETFs is not our core business and an area where we should [not] be spending money," he added.
Finally, Froneman underlined the importance of fuel cell technology for PGM demand.
"Listen, I think PGMs are metals of the future, metals that are going to assist dealing with the negative aspects of climate change, I think they are absolutely essential from an environmental point of view, they are clearly part of the hydrogen economy, what you gain is really fundamentally in terms of addressing climate change as well," he said.