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.
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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.