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.
Platinum Perspectives
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1 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.
1 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.
15 January 2022: 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.
1 January 2022: 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.
1 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.
1 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.
1 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.
1 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.
1 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.