The best performing commodity of 2021 is a raw material that most people will never have heard of – iridium. For a precious metal, iridium has achieved the types of returns that gold and silver investors could only dream of. Since the start of 2021 the price of iridium has increased by 140% to $6,300 per oz.
So whats behind the spectacular surge in prices?
Around 250,000 tonnes of iridium are mined each year with South Africa accounting for 80-85% of the worlds iridium output. Iridium is a byproduct of platinum and palladium mining, of which South Africa also plays a dominant role. However, when Anglo American Platinum (Amplats) closed a processing facility last year for several months it inadvertently created a supply shortfall just as the demand outlook for the metal improved.
Because iridium is a by-product next to more established commodities such as platinum and palladium, it doesn’t necessarily respond neatly to the laws of supply and demand. The high iridium price doesn’t provide enough incentive for Amplats or any supplier to produce more of it. Due to the high cost of separating iridium the price needs to cross a certain threshold to encourage a new and more expensive method of production – this results in a kind of stepped cost curve, where supply only responds if prices rise sharply enough. Since iridium has the longest processing time of all the PGM metals supply is likely to be curtailed well into 2021.
What is iridium and why is it in so much demand?
Iridium is a vital raw material for many industries. In shipping, it enables the chlorination of ballast water and for electronics it is used in OLED displays (used in premium smartphones), high-performance spark plugs and medical devices.
But perhaps the greatest area of excitement around iridium is its potential use in the ‘hydrogen economy’. Hydrogen uses a lot of energy to manufacture and iridium is an ideal, if expensive catalyst for the electrolytic production of hydrogen from water.
Hydrogen has gone through numerous hype cycles over the past 50 years. Over the past year hydrogen appears to have yet another chance in the sun once more, as decarbonisation has risen up the political agenda. The most recent hydrogen hype cycle has been driven by the sharp drop in the cost of generating renewable energy. This offers the hope that hydrogen can power much of our economy, while releasing zero carbon in the process.
Hydrogen has a number of challenges to further adoption (too many for this article to cover), one of which is the scarcity of iridium and its high price. Yet again though iridium is a prime example of why decarbonisation will never happen in a vacuum. The extraction of raw materials from the ground (whether its copper for EV’s, palladium for catalytic converters or iridium for producing hydrogen) will remain fundamentally important, even in a decarbonised economy.