Platinum Perspectives

1 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.

1 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.

1 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.

1 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.

1 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.

1 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.

1 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.

1 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.

1 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?

1 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.