Growing interest in vehicles powered by hydrogen fuel cells help lift platinum prices to six-year highs

By Alexandra Wexler

March 25, 2021 9:01 am ET

JOHANNESBURG—South African platinum miners are raking in record amounts of cash and reinvesting in their mines in a bet that vehicles powered by hydrogen fuel cells will help lift demand.

After years of low prices, profits at local miners of platinum group metals, which include palladium and rhodium among others, have soared, even though lockdowns across the globe suppressed demand in 2020. One reason for the jump in platinum prices is that more investors are buying the metal as a cheaper alternative to gold to hedge against inflation.

However, executives and industry analysts say that renewed efforts around the world to reduce carbon-dioxide emissions are also boosting demand for the metals from the car industry. In recent years, demand for platinum, which is used in the catalytic converters that scrub out pollutants from diesel engines, had suffered as car makers began to transition from internal combustion engines to electric vehicles.

Battery-powered cars, like those made by Tesla Inc., don’t use platinum group metals. Hydrogen-fuel-cell technology, however, relies on platinum, which can withstand higher temperatures than other metals. A fuel cell needs platinum for the catalyst that separates hydrogen into protons and electrons, which then generate the electrical current, making it an alternative to battery-powered vehicles. Hydrogen fuel cells are expected to be an important part of reducing global carbon emissions, though they remain expensive.

Much of that cost is due to the high price of platinum, leading manufacturers to explore alternatives. But for now, increased interest in the technology and the metal’s unique properties has helped lift platinum prices to more-than six-year highs.

“We feel quite excited about the potential of the hydrogen economy,” Natascha Viljoen, chief executive of Anglo American Platinum Ltd., the world’s No. 1 platinum refiner by volume, said.

“We do see quite significant support from government and private sector,” she added.

Japan’s Toyota Motor Corp. said in February that it had developed a fuel-cell system in a compact module that could be adapted easily for use in trucks, buses, trains, ships and generators. That followed a November announcement by Korean car giant Hyundai Motor Group that it would join with European chemical giant Ineos to explore opportunities in new hydrogen technologies. Other car makers are also working on incorporating fuel cells in large vehicles.

China, home to almost all of the world’s fuel-cell buses and trucks, has announced plans to spend $2.5 billion in 10 cities over the next four years to improve hydrogen-fuel-cell technology and develop policies for refueling stations.

The enthusiasm around hydrogen fuel cells has breathed new life into mining companies that were cutting jobs and selling assets a few years ago, as the advent of battery electric vehicles had sent platinum prices plummeting.

“Investors are just jumping on climate change—anything clean tech or green power has been running really hard since the routs during the pandemic,” said Adrian Hammond, mining analyst at SBG Securities, the independent brokering division of South Africa’s Standard Bank.

Selling their metals abroad in U.S. dollars has helped South African producers weather the country’s worst economic contraction since at least 1946, including a five-week mining shutdown from late March to May last year. According to Sibanye-Stillwater Ltd., the world’s No. 1 platinum producer by volume, the pandemic led to an approximate 14% decline in global demand for platinum, palladium and rhodium.

Supplies of recycled platinum group metals also fell in that time, as Covid-19 restrictions led to fewer vehicles being scrapped, leaving the markets for platinum, palladium and rhodium all in a deficit at the end of 2020. Prices for rhodium, which is a byproduct of platinum mining and also used in catalytic converters, tripled to $17,000 a troy ounce in 2020.

Anglo American Platinum, or Amplats, reported record earnings before interest, taxes, depreciation and amortization of 41.6 billion South African rand, equivalent to around $2.8 billion, in 2020, up 39%, despite disruptions at its processing plants due to repairs. Sibanye-Stillwater said net profit for the year skyrocketed to $1.78 billion from $4.5 million a year earlier. Impala Platinum Holdings Ltd., the world’s No. 3 producer of platinum group metals, recorded record free cash flow of 20.15 billion rand for the six months ended Dec. 31.

For the first time in a decade, miners are spending large amounts of money to boost production. Sibanye-Stillwater said in February that it was planning to invest around 6.3 billion rand to develop two platinum group metals projects and one gold project in South Africa. Impala Platinum announced plans to expand production at two of its mines: one in South Africa and one in Zimbabwe. Amplats said in February that it planned to increase output by 20% by 2030.

Investments announced so far focus on expanding production at existing mines or projects, rather than new exploration, said Daniel Sacks, a portfolio manager at Investec Asset Management in Cape Town. Given the surge in prices, he said, platinum miners would be “stupid not to invest some of the cash.”

Write to Alexandra Wexler at [email protected]