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.
Platinum Perspectives
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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 NOx, 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.
1 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.
1 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.
1 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.
1 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.
1 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).