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.
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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.