 We forecast continued growth for autocat sales (66% of 3E PGM demand) until 2023e …  … but acceleration of BEV adoption longer term is a concern for our palladium and rhodium outlooks beyond 2023e  Royal Bafokeng (Buy) and Anglo Platinum (Buy) look defensively positioned against BEV threat longer term Our analysis of historical IHS Markit light-duty vehicle battery electric vehicle (LDV BEV) sales forecasts shows rapid acceleration in long-term adoption. The forecasts as of January 2020 indicated an expected rise in BEV market share, from 4.14m units sold globally (5% market share) in 2021e to 13.13m (13% market share) in 2027e. However, the adoption curve has evolved to reflect the latest forecast of a 13% market share for 2024e and a further increase to 20.75m, or a 21% market share, in 2027e. Although we remain constructive on PGM demand for the medium term, the acceleration in anticipated BEV penetration longer term is a concern for PGM markets.

Rhodium and palladium look most vulnerable to increases in BEV penetration whereas platinum appears more defensively positioned. Based on our forecasts, rhodium and palladium will account for 94% and 84%, respectively, of the demand in 2021e from automobile catalytic converters (autocats), which leaves these metals particularly vulnerable to the longer-term evolution of BEV growth. However, platinum demand is more diversified, split into autocats (35%), industrial uses (33%), jewellery (26%), and investment (6%). Moreover, diesel autocats’ high reliance on platinum, particularly for heavy-duty vehicles and SUVs, makes this source of demand less likely to be displaced by BEVs. Other factors, such as the partial substitution of platinum for palladium in gasoline autocats and an expected rise in demand for hydrogen energy applications by the end of the decade, suggests further support for platinum prices. We expect platinum to outperform its 4E precious metal peers in the medium to long term.

Royal Bafokeng (RBP SJ, ZAR99.07, TP ZAR132.00, Buy): The company’s platinum rich Merensky reef accounts for its highest production contribution, at 77%. This means Royal Bafokeng has the highest exposure to platinum (59%) in its 4E split within the PGM sector. This supports our preference for Royal Bafokeng. The Merensky ore body also has the highest base metal by-product (copper and nickel) grades (0.34%) among all the reefs in Southern Africa and North America. This should provide further earnings tailwinds as the energy transition to renewable energy gains traction.

Anglo Platinum (AMS SJ, ZAR1,698.78, TP ZAR 2,085.00, Buy): The company’s platinum exposure (44% of 4E) is below Royal Bafokeng’s, but Mogalakwena, its biggest asset, provides high exposure to base metal by-products (0.30% grades).

Mogalakwena is a Tier 1, bottom-quartile cost asset and the largest source of Anglo Platinum’s production growth. This should provide some defensiveness against the growth in BEV adoption longer term.