June 2023: ETF investment returns: Growing investor appetite for platinum could deepen market deficit: South African investors have expanded their platinum ETF holdings by 430 koz year-to-date, as they see attractive upside for the metal in a market forecast to be in deficit by almost 1 Moz. In contrast, North American and European investors disposed of ETF holdings, reducing the net positive inflows to 300 koz versus only 30 koz included in the current outlook. As knowledge of the forecast record platinum deficit spreads, it is possible that ETF investor flows turn positive in North America and Europe, which could act to exacerbate the forecast deficit.
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May 2023: How to solve an almost 1 Moz platinum market deficit: Our latest Platinum Quarterly highlighted a forecast record platinum market deficit of almost 1 Moz in 2023. Given the inelasticity of platinum supply, this shortfall has to be met from alternative sources such as above ground stocks. However, it is not known what platinum price will be necessary to attract the portion of above ground stocks required to meet the shortfall or indeed what impact having almost 80% of those above ground stocks locked-up in China will have on metal flows and price.
April 2023: China’s economic data gradually improved each month through Q1, resulting in Q1 2023 GDP growth of 4.5% exceeding consensus forecasts of 4.0%: China is the largest consumer of platinum globally. Following the easing of COVID restrictions, economic data suggests growing momentum in automotive output and retail jewellery. Should China’s economic data continue to improve through the course of the year, it could boost demand for platinum beyond current expectations. Should demand return to 2021 levels, that could imply an aggregate ~300 koz of incremental platinum demand relative to our latest Platinum Quarterly 2023 forecasts, further deepening the forecast 2023 deficit of 556 koz platinum.
March 2023: The significant existing market for grey hydrogen de-risks new green hydrogen projects supporting their growth and associated platinum demand: The installed production capacity for green hydrogen is doubling every two years, as are plans for new production capacity. Existing grey hydrogen demand exceeds 80 Mtpa, providing an existing mature end market for green hydrogen whilst fuel cell deployment grows. Furthermore, a mature grey hydrogen market suggests experience and technology for handling hydrogen already exists, even if the infrastructure is not yet widespread. We estimate that by the latter half of the 2030’s, hydrogen-related demand for platinum could equate to a third of all annual demand for platinum.
January 2023: Electricity shortages may elevate platinum’s historic January/February positive price seasonality in 2023: Over the past 25 years, the platinum price has shown the strongest positive price seasonality in January and February. The average compound return over those two months has been almost 8%. In contrast, platinum’s price performance has on average been more muted through the middle of the year. Calendar Q1, is also characterised by seasonally low refined mine supply from South Africa due to the challenges of restarting mining operations after the summer/Christmas holidays. This may be an influence on the typically strong January/February platinum price performance. With electricity supply shortages continuing in South Africa, it is possible that power shortages could add to the challenges associated with maintaining refined mine supply in the first quarter of 2023, which could exacerbate positive price seasonality.
December 2022: The nature and size of platinum above ground stocks now locked up in China combined with the 2023 forecast deficit could materially impact price discovery: China’s significant excess platinum imports since 2019 have resulted in a flow of metal out of Western vaults and into China and in 2020 and 2021 match or exceed the platinum market surpluses estimated for 2021 and forecast in 2022. The timing of China’s platinum purchases has been highly price opportunistic, which suggests that there is a quasi-speculative component to them. However, there has also been a step-change in total volumes since early 2021, indicating that there may also have been an increase in real demand. The concentration of above ground stocks in China leaves limited excess inventory in the rest of the world to meet any market imbalances, such as the 303 koz deficit forecast for 2023. This, in combination with higher prices likely being needed to release Chinese inventories to the domestic market, could have a significant bearing on platinum market price discovery.
November 2022: ETF disinvestment may reflect a change in investor preference to rather own physical platinum: In an ideal world with total asset class flexibility, investors would choose the lowest cost option for exposure to an underlying asset. Since mid-2021, the lowest cost option for platinum exposure has switched first from ETFs to futures, and then from futures to holding physical metal. Indeed, backwardation in the platinum forward curve means investors would effectively be being paid to hold a futures position in platinum, and for some investors the attraction to own and lease out physical platinum may have been even more compelling given significantly elevated platinum lease rates. This may be a factor in the significant disinvestment from platinum ETFs since the middle of 2021, which has totalled 850 koz.
October 2022: Above ground stocks are not seen as a major headwind to platinum prices as deficits loom: We are forecasting the platinum market to enter sustained deficits from 2023. Unlike palladium in the 2010’s, the platinum price is unlikely to be constrained by significant above ground inventories as there is no equivalent to the Russian palladium inventory, and what above ground platinum stocks exist are either mostly depleted, increasingly price sensitive, or geographically constrained to China. China’s excess platinum imports has created tight physical market conditions, which are illustrated in high lease rates; something that was not true of palladium when it entered sustained deficits.
August 2022: Green hydrogen production and FCEV usage highlight platinum’s role in significantly reducing CO2 emissions: We estimate that PEM electrolysers operating on renewable energy could generate between 9 Mt and 29 Mt of green hydrogen per annum by 2030, dependent on the PEM portion (31%-96%) of all installations. We calculate that this range of hydrogen production displacing a combination of natural gas and internal combustion engine vehicles with FCEVs would result in cumulative CO2 savings of between 0.24 Gt and 0.63 Gt. At the lower end of this range, this equates to 1% of the savings needed to meet the Paris Agreement’s targets of limiting warming to 1.5°C, whilst at the top end of the range it equates to 11% of the reductions needed to limit warming to 2°C. Whilst the percentage contributions might at first glance appear small, they highlight the scale of CO2 emissions cuts that are needed, and that the CO2 emissions avoided thanks to green hydrogen are in fact meaningful. Annual platinum demand in 2030 from FCEVs and electrolysers, dependant on the PEM portion, would be between 1.6 Moz and 2.4 Moz.
May 2022: Is there a shortage of platinum in the spot market? Lease and EFP rates suggest there may be: Implied platinum lease and exchange for physical (EFP) rates have spiked to over 10% and dropped below negative US$20/oz respectively in the past fortnight. Together they suggest that there is a shortage of readily available metal in the spot market, possibly due to logistical challenges. While we do not know the exact reason behind the shortage, we saw similar moves in 2020 due to severe COVID-related transport disruptions, exacerbated by the ACP converter failure which led to a 12-month uplift in platinum prices. Could the Russia question be the ACP outage of 2022?
April 2022: Platinum for palladium substitution makes economic and strategic sense and could take platinum into deficit: Platinum for palladium substitution in gasoline vehicles makes compelling economic and strategic sense at current prices and in the current geopolitical environment. Russia’s invasion of Ukraine and the retaliatory sanctions enforced against Russia has cast a stark light on the 38% of global mined palladium supply that comes from Russia. Although Russia’s palladium exports are not yet subject to sanctions, this could change at any time. We estimate that substitution in newly launched models could save automakers between US$671M and US$1,118M p.a., increasing annual platinum demand by between 512 koz and 853 koz, which at the upper end would push the market into a deficit.
March 2022: European efforts to reduce reliance on Russian gas will accelerate hydrogen use and platinum demand: We estimate that the European Commission’s plans to replace 25-50 billion m3 of Russian gas with green hydrogen could result in incremental platinum demand of ~240 koz p.a. by 2030. Whilst the motivation is mostly strategic, we note that green hydrogen is also cost competitive at current, albeit inflated, natural gas prices. It would also boost the development of Europe’s hydrogen production capacity and accelerate the commercial adoption of fuel cell electric vehicles (FCEV), bringing forward their associated significant platinum demand, similar in size to global demand from catalytic converters today.
February 2022: NYMEX stock outflows continue to respond to physical market tightness from strong China imports: Ongoing platinum imports into China during 2021 were c.1.4 moz higher than its published demand requirements and well in excess of the estimated global platinum surplus of 769koz. This has caused tightness in the physical market, putting the platinum market into backwardation and creating an arbitrage, incentivising market participants to access cheaper NYMEX stocks to deliver into the higher priced European spot market. As a result, NYMEX stocks have continued to shrink from the highs reached in 2020 when COVID-choked logistics significantly increased market-making risks. Without an identified demand end use, excess China imports are not captured in our supply/demand analyses, yet falling NYMEX stocks are, distorting the supply/demand balance versus the tight market conditions.
January 2022 (II): Faster than expected ACP semi-processed inventory unwind increases the estimated 2021 platinum surplus but reduces the surplus in 2022: Anglo American Platinum has announced that it has substantially completed processing the semi-finished ACP inventory overhang created in 2020 ahead of schedule. Combined with restricted automotive production and reduced investment demand, this additional refined platinum flowing into the market may have contributed to platinum price weakness in the latter part of 2021. Importantly, looking forward, the ACP inventory overhang has been removed, reducing the estimated 2022 platinum surplus from 637 koz to 447 koz.
January 2022 (I): Platinum mining supply will rise back to pre-COVID levels only in 2024 despite high PGM basket prices: A significant spike in refined platinum supply in 2021 has given the superficial appearance of growth in mine output in response to higher PGM basket prices. However, most of the increase is a recovery in output post COVID disruptions in 2020, significantly supplemented by the unwinding of the ACP semi-finished inventory backlog. With the last of the ACP material coming to market in the first half of 2022, annual refined mine supply is not expected to recover to pre-COVID levels until 2024.
December 2021: Platinum’s demand growth potential suggests a breakout from gold and upward pressure on price: Platinum’s daily returns are approximately double those of gold’s which makes it attractive to systematic traders. This means that short-term moves in the platinum price are heavily influenced by changes in the gold price. Longer term pricing trends in platinum are determined by supply/demand and macro-industrial drivers, which tend to have a greater influence when the pricing relationship with gold goes through periods of weakness. The relationship with gold appears to be weakening again as we move into the end of 2021. This could be a precursor to platinum outperformance in 2022 on a recovery in vehicle production as the semiconductor shortage begins to ease. We note, however, that the continued spread of the Omicron variant may pose a headwind.
November 2021: Drivers behind China’s excess import trend could move the global platinum market into deficit: China continues to import platinum at volumes that are almost twice its visible demand levels. The underlying demand drivers behind this momentum remain unexplained, but ‘excess’ China imports so far in 2021 appear to have been sufficient to consume all of the forecast surplus presented in the latest Platinum Quarterly, and to push the market into a deficit. In this report we examine possible reasons for this behaviour in China, which include opportunistic price sensitive stock-building, higher per-vehicle platinum loadings, and platinum substitution for palladium. Whilst these theories are compelling, we cannot present data to prove them. However, we can demonstrate that should China imports continue at current rates, the forecast 2022 surplus of +637 koz would potentially become a deficit as large as -255 koz.
October 2021: Reduced platinum recycling could help offset chip-related platinum automotive demand losses: Reduced vehicle production and sales due to global semiconductor constraints results in delays to end-of-life vehicle scrappage. This reduces platinum autocatalyst recycling supply and partially offsets chip-related platinum automotive demand losses. Examining a scenario in which semiconductor shortages reduce 2021 production by 3.4M new vehicles (LV+HD), we estimate that the platinum surplus would increase by 116koz. On the flip-side, we calculate that autocatalyst recycling supply will be reduced by 21koz per million vehicles being run for longer instead of being scrapped. This moderates the chip-shortage linked increase to our forecast platinum surplus to only 44koz in 2021.
September 2021: Quantifying the impact of semiconductor constraints: Uncertainty regarding the scale of the impact from the global semiconductor shortage increases downside risk for automotive demand for all PGMs. However, our analysis suggests that automaker efforts to protect higher margin product lines protects platinum demand more than palladium. We estimate the spread in automotive platinum demand between the different global vehicle production scenarios could be as much as 369koz in 2022 compared to 843koz for palladium. Including the scope for automakers to prioritise higher margin products, typically large light vehicles and heavy-duty vehicles which is more favourable for platinum demand. This could reduce the change in platinum demand from 35koz to 28koz for every million vehicles of lost automaker production but would increase palladium demand from 105koz to 109koz. This highlights that whilst palladium is more sensitive to total vehicle production losses, it is less sensitive to changes in the automotive production mix than platinum.
August 2021: Platinum demand upside from higher loadings and rising production of heavy-duty vehicles. The average of public forecasts for Chinese H2 2021 HD diesel production is currently c.550 thousand units despite over 1 million units produced in H1 2021. Chinese HD vehicle production and sales are typically strongly correlated with investment in construction and infrastructure. This spending is expected to increase in H2 2021 to mitigate potential economic underperformance in China. This suggests upside potential for forecast Chinese HD diesel production. Indeed, if second half production were merely to match the pre-COVID H2 2019 level of c.750 thousand units, Chinese automotive platinum demand would increase by an additional 80 koz. This could be higher as average loadings in China appear low at c.13 g/unit compared to North American loadings of c.25 g/unit.
July 2021: Platinum less available than widely thought as indicated by the recent spike in platinum lease rates. Despite no identifiable disruptive event, lease rates spiked to well above historical norms, rising from 0.03% to 2.6% over the past month. We believe the recent spike is driven by unavailability of platinum to meet stronger than expected demand. Unanticipated demand strength in 2021 has come from strong investment demand, and record imports into China in support of growing industrial demand, higher heavy-duty vehicle production and platinum substitution for palladium. Availability of platinum appears to be limited for real physical demand reasons. As such, this market shortage is likely to be sustained through 2021, and could place further upward pressure on price.
June 2021: Investment demand amplifies platinum’s positive fundamental outlook, driving platinum revaluation. Physical investment demand for platinum has continued to grow strongly in 2021, following the record uptake seen in 2020. Platinum’s industrial demand exposure to global economic recovery, plus the widening market acceptance of material demand growth from platinum for palladium substitution, have created a strong thematic rationale for investment. Our current Platinum Quarterly forecasts net physical investment demand of 726 koz this year, and we believe there is an upside risk in this 2021 forecast. Surging Chinese automotive related spot platinum buying has added further fundamental support. Platinum’s delayed response to global recovery presents a significant investor opportunity, with the combination of Chinese spot buying and strong physical investment demand driving a likely revaluation.
May 2021: Platinum industrial demand in 2021 is expected to rebound by 25% over the 2020 level, to 2.4 moz, 13% above pre-pandemic levels. It will also be the largest net demand segment. Analysis of platinum demand tends to focus on the automotive and jewellery sectors, with industrial demand often overlooked. However, in 2021 platinum industrial demand is expected to account for almost 40% of total platinum demand net of recycling supply, due principally to demand from the petroleum refining, chemical and glass sectors. Significant capacity additions in chemical, glass and petroleum production, notably in China, have historically increased platinum industrial demand growth materially, and we believe capacity additions in these three areas will continue beyond 2021. More investors are becoming aware of this and platinum industrial demand growth adds to platinum demand growth from automotive and investment which, in the face of constrained platinum supply, drive sustained platinum deficits in 2021 and beyond.
April 2021: Analysing how platinum replaced palladium in diesel shows 2021 platinum demand could rise by c.100 koz. Johnson Matthey (JM) showed that by 2012, over 800 koz per annum of then cheaper palladium had replaced platinum in diesel autocatalysis. This substitution trend reversed from 2014 as the cost benefit waned, and in achieving compliance with Euro 6d emissions regulations, some platinum automotive demand, assumed to be reducing NOx, was simply replacing palladium in diesel. Removing substituted volumes from loadings analysis, shows that European platinum demand data does not yet reflect the higher loadings required to meet Euro 6d. Because of the extreme technical challenge of reducing on-road NOx emissions from c.800 mg/km to c.20 mg/km, we believe at least 20% - 40% more platinum was required to help achieve this. The full effect of the c.20% higher loadings per European diesel car could add over 100 koz of additional platinum demand from 2021 onwards.
March 2021: In 2021, 400 koz more platinum could replace palladium in addition to the 150 koz of expected ‘substitution’. Public discussion by automakers and catalyst fabricators to date has focussed on replacing palladium with platinum in catalysts of vehicles already on sale, with fabricators expecting such substitution to be c.150 koz in 2021 increasing to c.1.5 moz annually by 2025. However, this narrow definition of substitution does not cover metal replacement in models in development, prior to launch. In European and Chinese auto markets, all car models to be sold in 2021 had their emissions systems redeveloped over the preceding three years to comply with Euro 6d and China 6a regulations. This meant platinum could be used in place of palladium with almost no additional engineering, testing or certification costs and with no public disclosure. Indeed, if only 30% of palladium was replaced by platinum in 20-30% of the c.32 million gasoline light vehicles expected to be produced in China and Europe this year, such pre-launch metal replacement could be between 285 koz and 428 koz of additional platinum autocatalyst demand in 2021.
January 2021: Despite gold-related volatility, platinum’s demand growth outlook is driving more investor exposure. The platinum price has traded at over $1,100/oz so far in January 2021, a 47% increase from its March 2020. Despite this strong price performance, platinum is still undervalued versus its precious peer gold, and industrial substitute metal palladium. Despite two years of consecutive deficits, with a third deficit projected for 2021, platinum’s automotive and industrial uses appear overlooked when compared with industrial metals such as copper. The longer-term platinum price is driven by current and future expectations of supply/demand fundamentals, but with associated investor positioning typically placed in NYMEX futures. This positioning can be infrequent and of insufficient size to consistently prevent the short-term influence of gold price moves and systematic/CTA trading activity on platinum. However, platinum’s strong demand growth potential, from substituting for palladium for more cost-effective emissions reduction under tightening regulations and in decarbonising transport and heavy industry by in the growing green hydrogen economy, should provide investors with a strong incentive to continue to build platinum exposure from current levels.
December 2020: The recent increase in the platinum price has heightened debate about the treatment and role of physical investment demand in market balances and price discovery. WPIC includes net physical investment as a component of platinum demand, and consequently also as a source of supply in the case of net disinvestment. Excluding investment from demand to create an ‘industrial’ balance, can dissuade investors and harm sentiment, as price strength appears contrary to the ‘surplus’ suggested. This approach, paradoxically, warns that supply from investment is a material risk to a fall in short-term prices. In the past 40 years, there have been only 2 years where net physical disinvestment has occurred. ETF investment holdings, since first launched in 2007, have seen positive uptake in 11 of 14 years. Palladium ETF liquidation is frequently argued to support the claimed platinum price risk, however palladium disinvestment occurred after the price had doubled and continued as the price subsequently doubled again. Until the platinum price doubles at least, or rises well above the gold and palladium prices, this risk looks minimal.
November 2020: China’s renewed appetite for platinum jewellery enhances global market rebound. The global platinum jewellery market has seen a dramatic 32% rebound in the second half of 2020, after a COVID-19 impacted first half. Volumes rose 27% quarter-on-quarter to 498 koz in the third quarter, close to pre-pandemic quarterly levels. Key to the rebound in the fortunes of the platinum jewellery market is China, where jewellery demand grew 14% year-on-year in the third quarter and is expected to grow 10% year-on-year during the seasonally strong fourth quarter. Gold has traded at an average premium of c.$975/oz to platinum since March, compared to c$530/oz in 2019. This relative pricing increases retailer interest in stocking platinum jewellery compared to gold jewellery as it reduces cash flow requirements. A rising platinum price, that benefits manufacturer and retailer margins, with a continued wide discount to gold, represents a highly conducive environment to drive continued platinum jewellery demand growth in 2021.
October 2020: Platinum’s role in hydrogen and decarbonisation is a big driver of platinum investment demand. Green hydrogen has been thrust into centre-stage in 2020, as more than 70 countries, plus the EU, pledged to achieve carbon neutrality by 2050. Green hydrogen, produced by the electrolysis of water using renewable electricity as the power source, is key to decarbonisation. Platinum’s role in the Hydrogen economy is crucial. It is used in fuel cells and in the electrolysis of water using renewable energy to produce green hydrogen, where it is used in conjunction with iridium as a catalyst during electrolysis. A recent breakthrough reduces iridium loadings and makes more platinum demand here likely. The current EU and China green hydrogen generation capacity targets alone would require, cumulatively, over 600 koz of platinum by 2030. It appears platinum investors are already taking notice. Whilst many investors see platinum as an undervalued gold proxy, some are also seeing the strategic importance and growing demand for platinum from the burgeoning hydrogen economy.
September 2020: Resurgent EU automaker push to sell more diesel cars is a boost for platinum demand growth. Avoiding fines of up to €27bn for excess 2020 CO2 emissions, to be levied by the EU in 2021, is incentivising automakers to sell more diesel cars in Europe, and in particular mild-hybrid diesels. Exactly 5 years after Dieselgate automakers and regulators have taken steps to clear the way to promote diesel car sales. Fleet CO2 emissions declined steadily from 2009 but Dieselgate in 2015 reversed that trend as consumers chose to buy higher CO2 emitting gasoline cars. In 2020, rapid growth in mild-hybrid diesel sales has helped stabilise the EU diesel market share at 30%, stemming a 5-year decline, with the current actual sales trajectory pointing to more growth. Higher loadings on new RDE-compliant diesel-hybrid cars, means a 1% increase in market share will add well over 20,000 koz in annual platinum demand.
August 2020: The surge in global demand for precious metals highlights platinum’s potential to outperform. Increased global risk due to the COVID-19 Pandemic has driven strong investor demand for gold as a risk hedge, with the gold price rising to a new record high of $2,067 on 6 August 2020. However, what may have gone unnoticed is that since the platinum and gold price lows on 19 March 2020, of $599/oz and 1,474/oz respectively, platinum has significantly outperformed gold, rising 58% versus gold’s rise of 34%. Platinum’s price outperformance of gold is no anomaly. In the two years from the price lows of the Global Financial Crisis (GFC) in late 2008, platinum's weekly returns outperformed gold's by between 30% and 65%. In 2020, platinum market fundamentals have improved appreciably, while it’s longstanding strong correlation with gold has rebounded to 0.7. Gold investors may consider platinum as a proxy for gold on that correlation alone, with the added potential outperformance of platinum a further enticement.
July 2020 (II): Platinum’s market shortage may not be transient, supporting increased investment demand. Typical indicators of a shortage of metal include: surging lease rates and the emergence of backwardation in the forward price curve, both of which have been evidenced recently. Several factors have driven this physical market shortage: (i) reduced platinum supply of c.550 koz in 2020 due to the repair of the Anglo American Platinum Converter Plant (ACP), (ii) COVID-19 logistical bottlenecks that constrained producer and refiner exports and that limited bullion banks’ ability to secure and deliver physical metal against maturing NYMEX futures and (iii) strong demand emanating from increased buying and consumption from China as manufacturers (industrial and jewellery) increased stock levels coupled with resurgent truck production and, global bar and coin sales.
July 2020 (I): Headline vehicle sales data masks positive platinum automotive demand trends. Global light vehicle sales contracted by 30% in H1-2020, impacting investor platinum sentiment due to automotive demand accounting for c.40% of platinum demand. However, sales data hides several positive platinum and diesel trends. Firstly, Chinese heavy-duty vehicle production has risen 8% YoY so far this year, contrary to expectations, and could add up to 85 koz in platinum demand if production is flat over the rest of the year. Secondly, sales of mild-hybrid diesel cars in Europe have bucked the general down trend helping to stabilise Europe’s diesel market share at c.30%, with new model launches likely to increase this share. Lastly, COVID-19 driven disruption costs and sales losses could further incentivise automakers to accelerate substitution of platinum for palladium in autocatalysts to mitigate lost profit.
June 2020: Unprecedented bar and coin buying in 2020 – on increased global risk – is good for platinum. Demand for platinum bars and coins surged to 312 koz in the first quarter of 2020, as retail investors reacted to heightened global risk and the platinum price falling to decade low levels. This represented an annual rate 5 times higher than over the last 40 years, and could well have been higher but for constrained supply. Bar and coin investment is an often overlooked, but important source of platinum demand, accounting for 19% of demand in Q1. Continued macro-uncertainty and related stimulus policies are likely to support investor demand for hard assets such as platinum, which is an important diversifier in an investment portfolio.
April 2020 (II): Lower diesel CO2 emissions secured through retrofitting. The heightened importance of reducing climate change and the COVID-19 related reduced funding of battery electric vehicle infrastructure, makes it essential to reduce CO2 from internal combustion engine (ICE) vehicles at the lowest overall cost. New and existing diesel vehicles emit between 20% and 35% less CO2 than equivalent gasoline vehicles. It is essential to sell more new diesels and to preserve the CO2 benefits of the existing on-road fleet. This retrofitting reduces NOx, secures the lower CO2 emitting portion of the on-road fleet and could increase platinum demand by 780 koz.
April 2020 (I): Palladium’s ongoing sustained deficits maintain the impetus for platinum substitution. Unlike other asset classes, changes in investor positioning, both in futures and physically-backed ETFs, were not significant in palladium’s 2019 price rise, nor in its March 2020 price collapse and almost immediate recovery. Palladium’s limited liquidity, and hard to determine value, price floors and ceilings kept investors away. Instead, physical palladium purchases by Chinese automakers have been key to palladium’s 2019 and 2020 price trajectories. However, palladium’s high price, inelastic supply, extreme market tightness and its sharp contrast to the platinum market, suggest demand rebalancing is inevitable, if not already underway.
January 2020: Higher diesel sales to reduce massive EU CO2 fines increases platinum demand growth potential. Average CO2 per new car sold in the EU is increasing, meaning automakers face potentially significant fines for missing 2021 CO2 targets. Commentary on strategies to mitigate these fines has focussed on battery-only vehicles and their sales growth. However, many automakers are strongly favouring the mild hybrid diesel and its plug-in version as vital in reducing the fines they will pay. Such hybrid diesel vehicles produce far less CO2 than equivalent gasoline or even diesel models. Growth in sales of mild hybrid and plug-in mild hybrid diesel vehicles will reduce CO2 fines and boost automotive platinum demand in 2020.
December 2019: Weaker Chinese jewellery demand is not offset by growth elsewhere, despite the sustained low platinum price. Net Chinese jewellery demand is over 800 koz lower than it was five years ago and is still trending downwards but at a slower rate. Absent significant growth in other regions, jewellery demand remains the weakest element of the investment case for platinum, despite record price discounts to gold and to palladium. Total jewellery demand will remain largely dependent on a recovery in jewellery fabrication in China.
November 2019: Platinum recycle supply growth is steady, largely unresponsive to price and unable to compensate for lower mine supply in 2020. Historically, platinum recycle supply has grown based on past vehicle platinum loadings, the scrappage profiles of vehicles and, counterintuitively, rising jewellery sales in China as platinum’s largest jewellery market was established. We illustrate the nature of automotive recycle supply through palladium where its massive price increase has left its expected recycle supply largely unchanged.
October 2019: Weakness in auto sales are not a strong reason to expect a PGM price pull back. Historically, tightened emissions levels rather than increased vehicle sales caused strong PGM demand growth. This trend has been evident in China this year. In addition, we consider if meaningful platinum demand growth will come from substitution in several low-temperature applications in gasoline vehicles and in palladium-containing diesel autocatalysts.
September 2019: Platinum ETF holdings are up 38% and its price is up 20% yet many commentators believe platinum’s fundamentals are still poor. Large macro funds that were slow to participate in the gold rally have used platinum futures as a proxy for gold and as an alternative to negative yield assets. We expect further growth in investment demand for the remainder of this year as investors continue to factor platinum’s relatively low price ($577/oz below gold and $723/oz below palladium) and improving supply-demand outlook (surplus down to 345 koz in 2019f from 675 koz in 2018).
August 2019: Above Ground Stocks (AGS) increase insight when considering platinum as an investment asset. Above Ground Stocks are a natural part of the physical metal market and have not proved an impediment to higher prices for palladium and nor should they for platinum. Platinum ETF buying of 755 koz in 2019 has tightened the physical market, making holders of unpublished AGS less likely to sell. We believe platinum’s current demand growth potential is a more likely driver of the platinum price now.
July 2019: Automaker strategies to reduce multi-billion Euro CO2 fines increasingly include achieving higher diesel sales. The 2009 EU legislation to reduce CO2 takes effect in 2021. From September 2019 all new diesel cars sold will be Euro 6d TEMP, or RDE, compliant and will finally be ‘clean’ (in NOx terms). This makes it easier for automakers to promote diesel sales including mild hybrid and plug-in hybrid diesel models and is positive for platinum demand.
June 2019: Industrial demand has grown at twice the rate of global growth in the last 5 years and is now the largest portion of net platinum demand. This recent growth, above its long run correlation with global GDP, has partly offset easing Chinese jewellery and European autocatalyst demand. Industrial demand growth is driven by global economic growth and advances in technology but can exhibit short term changes unrelated to macro trends. Steady industrial demand growth, now and in future, underpins platinum.
April 2019: Bar and coin and ETF demand are important to the platinum investment case. Given the low current platinum price and the spectacular 2019 year-to-date growth in ETF holdings, it is worth looking at the relative roles of owned and exchanged traded investment in physical platinum.
March 2019: The overall PGM picture looks strong, despite the platinum surplus. Palladium’s 2019 market deficit is estimated to approach 1 moz, assuming zero investment demand. This more than exceeds the combined surpluses estimated for platinum and rhodium. As the metals are to a significant extent fungible, a large market imbalance in one metal should result in a rebalancing among the PGMs, as we discuss in this report.
February 2019: Platinum provides some diversification benefit for portfolios. Recent market volatility reminds us of the importance of portfolio diversification. Adding a risky asset to an existing portfolio reduces overall portfolio volatility when the new asset has a correlation <1.0 with the existing portfolio. Our note explores platinum’s diversification dynamics and qualities.
January 2019: Sustained palladium futures curve backwardation has ramifications for platinum. When futures curves change shape, they can impart valuable market information. The palladium futures curve has been in backwardation for over a year, a sign of a shortage in the metal. This is another indicator arguing for substitution of palladium by platinum in automotive applications, in our view.
December 2018: FCVs represent material long-term platinum demand. We investigate the potential impact of fuel cell electric vehicles on platinum demand, building a baseline forecast anchored on announced fuel cell vehicle and infrastructure plans in Japan, China, California and elsewhere. We find it generates material demand in the coming years.
November 2018: Upcoming China emissions regulations look likely to have a meaningful impact on PGMs demand. We highlight the likely impact of the upcoming China 6 emissions standards on platinum and platinum group metals (PGM) demand. The combination of tightening emissions standards and continued auto production growth means that China’s appetite for these metals has significant room to grow.
October 2018: The palladium premium is a potential platinum opportunity. We highlight the sustained palladium price premium to platinum and the potential effect on platinum demand. Historical substitution trends among platinum, palladium and rhodium in automotive catalysts mean that a sustained significant price premium of palladium over platinum looks unlikely.
September 2018 (II): ETFs are an essential component of platinum demand. We highlight that Platinum ETFs, being physically backed, form an essential part of the annual platinum demand as vaulted allocated bars backing them are purchased in the spot market.
September 2018 (I): Selective Catalytic Reduction systems do use platinum. We explain that Selective Catalytic Reduction (SCR) systems on diesel cars do not remove the need for platinum. Achieving low on-road NOx emissions should see higher platinum loadings on LNT and SCR emissions control systems.
June 2018: The palladium price is important for platinum investors. We outline how high demand and consecutive deficits increase risks to automakers of insufficient palladium and are a potential driver of substitution by platinum in gasoline cars.
May 2018: We look at fuel cell electric vehicle (FCEV) adoption, a potential driver of platinum demand. The similarity of fuel cell power growth to past growth in wind and solar power has not been widely recognised.
April 2018: Platinum’s attraction to gold investors. We highlight platinum’s precious metal attributes that could appeal to gold investors.
March 2018: A new platinum ETF in the US adds a vehicle to invest in platinum. We address why the launch of a new ETF in the U.S. could increase investor interest and investment demand for platinum.
February 2018: Platinum loadings in diesel cars could well rise. We discuss automakers’ potential emissions strategies and the desire to avoid any risk of exceeding legal limits in real world driving conditions.
January 2018: Diesel cars may still be needed to meet carbon dioxide targets. We explore whether new car CO2 will continue to rise, and whether diesel will continue to be a negative for platinum sentiment.
December 2017: Sibanye-Stillwater’s purchase of Lonmin could be significant for the platinum market. We explore whether Sibanye-Stillwater’s proposed acquisition of Lonmin is meaningful to the platinum market.
November 2017: China auto sales growth augurs well for platinum demand. We discuss the upside potential from China auto demand.
October 2017: Over specific periods, platinum has a positive correlation with gold. We discuss what the positive correlation with gold means.
September 2017: Independent testing could help diesel cars. We discuss how independent testing could impact European diesel passenger market share.
August 2017: China jewellery demand is has been in a down cycle. We address why the impact of declining China jewellery demand could be offset by upside potential in India.
July 2017: What do electric vehicle mean for the platinum market? We explore why the market may be overestimating the potential impact on platinum demand from electric vehicles.
June 2017: Declining European diesel may be overestimated. We address the potential impact on platinum demand from the declining European diesel market share, and reasons why the market may be overestimating the negatives.