Coronation Reinvests in PGM Sector as EV Momentum Slows
Asset management firm Coronation has reversed its stance on the platinum group metals (PGMs) sector, deciding to reinvest after initially pulling out a year ago due to concerns that the industry was facing a decline. The firm's change of heart is largely attributed to the recent slowdown in the adoption of battery electric vehicles (EVs), which had previously threatened future demand for PGMs.
"Having been bearish on the PGM sector for more than a year, we are turning constructive again. Governments and vehicle manufacturers around the world are toning down their EV incentives and production targets," analysts at Coronation said. "Hybrids, which contain PGMs, are now the fastest-growing subset of EVs. The current setup, with subdued PGM prices trading close to production costs, will likely limit medium-term PGM production and sow the seeds for the next up cycle. As a result, we have been buyers of PGM shares."
PGM prices have struggled over the past two years as the market anticipated a decline in demand with the global shift towards battery EVs. Coronation's decision to exit the sector last year attracted significant attention after the asset manager, which oversees about R670 billion ($35.6 billion) in assets, described PGMs as a "value trap" despite the potential for short-term gains.
However, earlier in October, Coronation changed course, purchasing a 5% stake in Northam Platinum. The firm cited the recent tapering in battery EV sales growth and a surge in demand for hybrid vehicles, which use PGMs in catalytic converters to reduce emissions, as key factors for its renewed interest.
Sibanye-Stillwater, one of South Africa's leading PGM producers, echoed similar sentiments in April, emphasizing the substantial longevity of PGMs in automotive applications, particularly in hybrid vehicles. South Africa accounts for over 50% of the world's platinum production, mainly from the Bushveld Complex, and the PGM industry remains the largest employer in the country's mining sector.
Six metals comprise the PGMs: platinum, palladium, rhodium, ruthenium, osmium, and iridium. South African companies Anglo American Platinum, Sibanye-Stillwater, Impala Platinum, and Northam are among the world’s leading producers.
The Public Investment Corporation (PIC), Africa’s largest fund manager, recently increased its stake in Sibanye-Stillwater to just over 15%, underscoring its confidence in the long-term prospects of the PGM sector. Kabelo Rikhotso, the PIC’s chief investment officer, pointed out that PGMs are likely to play a significant role in the green economy, especially in the development of the hydrogen economy.
Anglo American CEO Duncan Wanblad also expressed optimism about the PGM market, stating during the Johannesburg Junior Mining Indaba in October that hybrid vehicles are likely to become a more realistic option in many markets. He argued that hybrids, which have higher PGM loadings compared to internal combustion engines, may be more viable than battery EVs, which are not the ultimate solution that some might expect.
In addition to PGMs, Coronation has also backed other sectors as part of its investment strategy. Last week, the firm announced a deal that will see it become 51% black-owned, and has invested in niche private banking and wealth management group Investec, as well as South Africa's largest retailer, Shoprite. To facilitate these new investments, Coronation reduced its holdings in Standard Bank, FirstRand, Nedbank, and Absa, shifting its focus to Investec and Shoprite.
"Shoprite is a 'new' holding in the fund, although it has been owned before in the fund's history. We believe the Shoprite Checkers group is exceptionally well-positioned for strong earnings growth over an extended period," Coronation said. The firm also cited shorter-term factors such as reduced spending on diesel for generators and longer-term benefits from effective management as reasons for their optimism about Shoprite's performance.
