Iridium’s Supply Squeeze: Geopolitical Risks in South Africa and Russia

The world’s supply of iridium, a critical platinum group metal (PGM), is facing a potential squeeze due to geopolitical risks concentrated in South Africa and Russia. With South Africa holding over 80% of the world’s iridium supply, and Russia also being a significant producer, any disruption in these regions could send shockwaves through industries reliant on this rare element. This scarcity is further amplified by iridium being 1000 times rarer than gold.

What is Iridium and Why Is It Important?

Iridium is a hard, silvery-white metal that belongs to the platinum group. Known for its extreme corrosion resistance, even at high temperatures, iridium finds use in a variety of critical applications:

Green Hydrogen Production: Iridium is a crucial catalyst in Proton Exchange Membrane (PEM) electrolyzers, which are used to produce green hydrogen by splitting water into hydrogen and oxygen. As the world transitions to cleaner energy sources, the demand for iridium in this sector is expected to surge.
Electronics: Iridium is used in spark plugs for internal combustion engines and other equipment requiring high-temperature applications, such as spacecraft components.
Medical Applications: Iridium isotopes are used in brachytherapy, a form of radiation therapy for cancer treatment.
Other Industrial Uses: Iridium is also utilized in various industrial processes, including the production of chlorine and the creation of specialized alloys.

South Africa: Dominance and Challenges

South Africa is by far the largest producer of iridium, accounting for over 80% of global supply. This dominance makes the iridium market particularly vulnerable to any instability within the country. Several factors contribute to the geopolitical risks associated with South African iridium production:

Aging Mines: Many of South Africa’s iridium mines are aging and becoming depleted, leading to lower yields and higher operational costs. A 2021 report by the World Platinum Investment Council (WPIC) suggested that South African iridium production could decline by up to 20% within five years if current conditions persist.
Power Supply Issues: South Africa’s state-owned electricity provider, Eskom, has been struggling to meet the country’s energy demands, leading to frequent power outages and load curtailment. These power disruptions can significantly impact mining operations and processing activities, further constraining iridium supply.
Socio-Economic and Political Instability: Political and socio-economic risks in South Africa can impact primary iridium supply. Factors such as labor unrest, regulatory uncertainty, and corruption can disrupt mining operations and create an unstable environment for investment.

Russia: Geopolitical Tensions and Production Declines

Russia is another significant producer of iridium, although its production volume is considerably smaller than South Africa’s. The geopolitical risks associated with Russian iridium production stem primarily from:

The War in Ukraine: The ongoing war in Ukraine has led to international sanctions against Russia, which could disrupt the country’s iridium production and exports. Procurement challenges arising from the war in Ukraine also affect Russian production.
Decreasing Production: In 2022, mined iridium production in Russia decreased by an estimated 13%. This decline could be attributed to various factors, including sanctions, logistical challenges, and operational issues.
Controversial Business Practices: There have been reports of a U.S. communications company, Iridium, maintaining an office in Moscow and working for the Russian defense industry, even during the war in Ukraine. This raises ethical concerns and could potentially lead to further scrutiny and sanctions.

Impact on the Iridium Market

The concentration of iridium production in South Africa and Russia, coupled with the geopolitical risks in these regions, has created a volatile and uncertain market. The potential consequences of these supply-side risks include:

Price Volatility: Disruptions to iridium supply can lead to significant price spikes, as seen between 2020 and 2021 when prices exceeded 160%. This volatility can make it difficult for industries reliant on iridium to manage costs and plan for the future.
Supply Shortages: Geopolitical events or production issues in South Africa or Russia could lead to supply shortages, impacting the availability of iridium for critical applications such as green hydrogen production.
Increased Costs: As iridium becomes scarcer, its price is likely to increase, making PEM electrolyzers and other iridium-dependent technologies more expensive. This could slow down the adoption of these technologies and hinder the transition to a green economy.

Mitigating the Risks

To mitigate the risks associated with iridium’s supply squeeze, several strategies can be considered:

Diversification of Supply: Companies and governments should explore diversifying their sources of iridium by investing in new mining projects in other regions or developing alternative materials. Australia, for example, has exploration projects for palladium and platinum group metals.
Technological Innovation: Research and development efforts should focus on reducing the amount of iridium needed in PEM electrolyzers or developing alternative catalysts that are more abundant and cost-effective. Some companies have already achieved significant reductions in iridium usage through catalyst optimization and innovative designs.
Recycling: Recycling iridium from end-of-life products can help to supplement primary supply and reduce reliance on mining.
Strategic Stockpiling: Governments may consider building strategic stockpiles of iridium to ensure a stable supply for critical industries in the event of disruptions.
Supply Chain Resilience: Companies should implement robust supply chain management strategies to mitigate the impact of potential disruptions, including diversifying suppliers, building buffer stocks, and developing contingency plans.

Investment Opportunities and Considerations

The iridium supply squeeze presents both challenges and opportunities for investors.

Mining Companies: Companies involved in iridium mining and exploration could benefit from increased demand and higher prices. However, investors should carefully assess the geopolitical risks associated with these companies’ operations.
Technology Companies: Companies developing iridium-free or low-iridium technologies for green hydrogen production could see increased demand for their products.
Precious Metals Funds: Investing in diversified precious metals funds that include iridium can provide exposure to the metal’s potential upside while mitigating the risks associated with investing in a single commodity.

However, potential investors should also be aware of:

Price Fluctuations: Iridium prices are highly volatile and can be affected by a variety of factors, including geopolitical events, technological developments, and changes in demand.
Long-Term Investment: Investing in iridium-related ventures may require a long-term perspective, as it may take time for new mining projects or technologies to come to fruition.

Conclusion

Iridium’s supply squeeze, driven by geopolitical risks in South Africa and Russia, poses a significant challenge to industries reliant on this critical metal. However, by diversifying supply sources, fostering technological innovation, and implementing robust supply chain management strategies, it is possible to mitigate these risks and ensure a stable supply of iridium for the future. The current situation also presents unique investment opportunities for those who understand the dynamics of this complex market.

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