Platinum Perspectives

1 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.

1 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.

1 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.

1 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.

Download PDF

1 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.

15 July 2020: 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.

1 July 2020: 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.

1 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.

15 April 2020: 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 NO_x, secures the lower CO₂ emitting portion of the on-road fleet and could increase platinum demand by 780 koz.

1 April 2020: 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.