Platinum Group Metals Rally on Supply Constraints & Chinese Demand

• Platinum and palladium markets are experiencing significant supply deficits (500,000+ ounces annually for 2-3 years), representing roughly 5% of total market demand in these small, concentrated markets totaling 7-9 million ounces globally.
• Since May 1st, platinum has gained 33% and palladium 12.5%, driven primarily by physical demand from China as investors substitute these metals for gold, creating actual warehouse drawdowns rather than paper trading.
• South African mine rationalization continues due to deep, labor-intensive operations at current price levels, while Russia (26% of palladium supply) liquidates inventory to fund war efforts, creating near-term oversupply but long-term supply concerns.
• Automotive catalytic converter demand remains robust despite electric vehicle growth, with hybrid vehicles actually requiring more platinum group metals (PGMs) than traditional engines, while industrial applications continue expanding.
• Olive Resource Capital have built positions over 18 months across the development spectrum, from large producers (Sibanye-Stillwater, Impala Platinum) to developers (Bravo Mining, Chalice Mining, ValOre Metals) in favorable jurisdictions outside South Africa and Russia.

The platinum group metals (PGMs) sector has emerged as a noteworthy investment theme, driven by fundamental supply-demand imbalances and recent market catalysts that have generated significant price momentum. In a recent discussion between Derek Mcpherson (Executive Chair) and Sam Pelaez (President, CEO, and CIO) of Olive Resource Capital, the investment case for PGMs was examined through the lens of market structure, supply constraints, and specific investment opportunities across the development spectrum.

Market Structure & Historical Context

The PGM market's appeal lies primarily in its scale and concentration. Total global demand for palladium is forecast at approximately 9 million ounces for 2025, while platinum demand represents roughly 7 million ounces. As Derek noted, 

"It doesn't take big moves, it doesn't take large scale mines to come on or off, it doesn't take very much to actually move the markets materially, and so that's what creates the opportunity for outsized returns."

This market structure has historically produced dramatic price movements. Palladium's previous cycle saw prices surge from under $1,000 to over $2,500 per ounce within an 18-month period, driven by emission standard changes that increased palladium requirements in internal combustion engine vehicles. The small market size means that relatively minor supply or demand shifts can create disproportionate price responses.

Current Supply-Demand Fundamentals

Both platinum and palladium have been operating in substantial deficits for multiple years. According to the discussion, platinum has experienced deficits since 2022, while palladium deficits began in 2023. These deficits represent approximately 500,000 ounces annually for each metal, equivalent to roughly 5% of their respective markets. Derek emphasized the significance of these numbers: 

"Oftentimes these are things that get taken up by secondary supply, but eventually they catch up and you get a fundamental catalyst that drives the price higher." 

The persistence of these deficits, combined with limited above-ground inventory, has created structural tightness in both markets.

Recent Market Catalyst

The most significant recent development has been the emergence of physical demand from China, which appears to be driving actual metal deliveries rather than paper trading. Sam explained: 

"It looks like it's genuine physical demand out of China, possibly predominantly as a substitution for physical gold investing."

This physical demand has created measurable market impact since May 1st, with platinum gaining nearly 33% and palladium advancing 12.5%. The key distinction is that "the supply of metal is being taken out of the warehouses and shipped to China." 

It is then creating genuine supply tightness rather than speculative positioning. The Chinese substitution effect extends beyond investment demand into jewelry markets, where platinum's relative discount to gold has made it attractive for consumers seeking precious metal exposure at lower price points.

Compass, Episode 19

Supply-Side Pressures

South African Challenges

South Africa represents 56% of global platinum production, making developments in this jurisdiction critical for market balance. The region's mines face structural challenges, as Derek detailed: 

"South African mines are generally very old and very deep, and so those mines eventually will come off the line, and when prices get low we see a steady flow of closures."

These operations are characterized by narrow, labor-intensive mining zones that require manual extraction methods, making them high-cost and vulnerable to price volatility. The ongoing rationalization of South African capacity represents a multi-year headwind for global supply.

Russian Supply Dynamics

Russia contributes approximately 26% of global palladium supply, primarily through the Norilsk complex. The discussion highlighted that Russia has been liquidating PGM inventory to fund military operations, creating near-term oversupply that has pressured prices. However, this inventory liquidation is finite and may contribute to future supply constraints.

Notably, palladium sponge remains unsanctioned in US markets, allowing continued trade flows despite broader geopolitical tensions. This regulatory gap demonstrates the strategic importance of PGM supply chains in industrial applications.

Industrial Demand Outlook

Automotive Applications

Despite concerns about electric vehicle impact on catalytic converter demand, the industrial outlook remains constructive. Both experts emphasized that hybrid vehicles actually require more PGM content than traditional engines due to thermal management requirements. Derek noted: 

"When you get into hybrid electric vehicles, those engines run very cold, and so you actually need almost as much platinum palladium."

The automotive industry has also adapted to historical price relationships between platinum and palladium. When palladium traded at extreme premiums to platinum (reversing the historical 2:1 platinum to premium), manufacturers increased platinum usage in catalytic converters. This substitution has created more balanced demand patterns and reduced the sector's dependence on single-metal price movements.

Broader Industrial Applications

Beyond automotive uses, PGMs serve critical functions across multiple industrial sectors for emissions reduction and specialized chemical processes. This baseline industrial demand provides fundamental support independent of automotive sector dynamics and is not subject to the same disruption risks from electrification trends.

Investment Opportunities Across Market Segments

Large-Cap Producers

The discussion identified several established producers offering different exposure profiles:

Impala Platinum: Recently spun out of Anglo American, this entity owns the Mogalakwena mine in South Africa's western limb, producing 700-800,000 ounces annually with relatively balanced platinum-palladium output and superior grades compared to traditional South African operations.

Sibanye-Stillwater: Offers geographic diversification through its Stillwater Complex in Montana (the largest PGM operation in the Western Hemisphere) combined with South African assets. The company also provides exposure to battery metals through lithium and cobalt refining operations in Europe. Recent management succession planning under longtime CEO Neal Froneman provides leadership continuity.

Ivanhoe Mines: While primarily known for copper operations in the Democratic Republic of Congo, Ivanhoe's Platreef project in South Africa represents a significant PGM development. The project is designed as a bulk mining operation with 20-meter-high mining zones, contrasting with traditional narrow-vein South African operations. Production is targeted to reach over one million ounces by 2029.

Development-Stage Opportunities

Bravo Mining (Brazil): Features a 15-million-ounce resource at good grades from surface to 200 meters depth, with management holding significant equity stakes. Brazil's mining jurisdiction provides political stability while maintaining relationships with both Western and BRICS countries, potentially expanding financing and offtake options.

ValOre Metals (Brazil): Holds a 2.2-million-ounce deposit with 2:1 palladium-to-platinum ratio at surface-mineable depths. The company is executing a merger with a local gold company to consolidate district-scale opportunities and has previously monetized non-core assets through spin-offs.

Chalice Mining (Australia): Operates in Western Australia's favorable mining jurisdiction with a 3.8-million-ounce resource on a 3E basis. The project includes significant base metal credits (nickel, cobalt, copper) and features a staged development approach. Recent metallurgical improvements have enhanced recovery rates, potentially providing free cash flow upside.

Strategic Considerations

The investment approach outlined emphasizes entering development-stage companies during market troughs, accepting near-term illiquidity in exchange for leveraged exposure to eventual market recovery. As Derek explained: 

"We want to be [investing] in the developers early. Sometimes that can be painful in the short term because developers are somewhat illiquid, but by the time you get into it and the market's moved... Some of our positions are up 40 to 50% over the last month."

Capital availability represents a critical screening criterion, ensuring companies can survive market downturns without dilutive fundraising during recovery phases. The firms prioritize management teams with proven track records and significant personal investment in their projects.

Geographic diversification away from traditional South African and Russian supply sources aligns with broader supply chain security trends, potentially commanding valuation premiums as Western governments and industries prioritize secure supply sources.

Market Timing & Outlook

The discussion suggests the PGM market may be entering a multi-year supply-constrained environment. With only 18 months of above-ground platinum inventory relative to current deficit levels, and typical mine development timelines extending 7-10 years, supply response capabilities appear limited.

The emergence of physical Chinese demand, combined with ongoing South African mine closures and finite Russian inventory liquidation, creates multiple supportive factors for sustained price appreciation. However, the speakers acknowledged uncertainty around catalyst timing, noting that fundamental deficits persisted for years before recent price movements began.