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A new trump in favor of undervalued platinum

14 december 2020

In Q3 this year, platinum, along with other precious and non-ferrous metals, recovered rapidly from the collapse caused by the COVID-19 pandemic. The demand for the metal outstripped the supply volumes suffered from a series of failures at the Anglo American Platinum facilities. The growth was driven by a general recovery in the economy due to easing the coronavirus restrictions and giving monetary incentives.

The structural deficit in the platinum market could result in new record prices, but the quotation dynamics is inferior not only to palladium, gold and silver, but also to copper and aluminum. One of the main reasons is the continuing decline in the production of diesel-powered vehicles with platinum as the main metal for catalytic converters.

But even if this sector stagnates, platinum has another trump in its favor. The confidence in its long-term prospects is based on the shift to a hydrogen-based economy, which shows the wider use of the fuel cell vehicles and the electrolyzers using platinum to generate ‘green’ hydrogen. The pent-up jewellery demand could provide a short-term support for platinum.


According to the World Platinum Investment Council (WPIC) Platinum Quarterly survey, the main elements of supply and demand in the platinum market returned to their pre-pandemic levels in Q3. Against the background of easing the COVID-19 restrictions, both the demand (75%) and supply (48%) have grown strongly. Despite some recovery in the platinum mining and recycling, a steady demand in the automotive industry and the rapid rise in the investment demand for precious metals contributed to a significant deficit. By October, the deficit amounted to 700,000 ounces, and by the end of the year, it will reach 1.2 mn ounces instead of 336,000 ounces expected two months earlier, that is, the estimate increased by more than 3.5 times.

In 2021, the WPIC expects a less severe deficit (224,000 oz) as the platinum supply will grow by 17% and the demand will increase by 2% only. However, the next year will be the third consecutive year of the shortage in the platinum market. The demand for jewellery in China, which will grow for the first time in 7 years, will be an important driver.

Norilsk Nickel, the largest palladium and platinum producer, has a more conservative view of the market balance. According to the company, the platinum market this year will face insignificant shortage - at the level of 100 000 ounces. Global demand will fall by 15% (to 7.6 million ounces), while supply will decrease by 22% (to 8.2 million ounces). Nevertheless, this estimate, made in early December, is noticeably better than the previous one, dated August, when Norilsk Nickel expected a surplus of 0.7 million ounces (almost 10% of global demand). Norilsk Nickel forecasts a surplus of platinum reaching 1 million ounces in 2021, taking into account almost 300 000 ounces accumulated in work-in-progress in South Africa. Supply next year will rebound more strongly (31%) than demand, which will grow by only 7% by 2020.

According to Trevor Raymond, director of research with the World Platinum Investment Council, the price of platinum correlated rather weakly with the growth in the demand in Q3 making this metal one of the main undervalued assets in the commodity market. Platinum has seen a sharp recovery from $600 an ounce in March, but remains stuck below $1,000, its highest level since early 2017. The price has not responded to the growing imbalance in the market, which is a big surprise, Raymond says. In his opinion, that it is only a matter of time before platinum prices react to the tightening supply, and more investors will be paying attention to this metal, the dynamics of which lags behind palladium, gold, silver and non-ferrous metals.

In addition to the investment demand, the future economic recovery could contribute to the rise in the platinum price, which became more real in the light of recent news about the effectiveness of several vaccines against COVID-19. “People are starting to think about travelling again in vehicles and those engines will be using more platinum. Platinum remains the cheapest option when it comes to reducing emissions,” says Raymond.


The global platinum production in Q3 (1.94 mn oz) was 5% lower than last year, much less than in the previous quarter that showed a 36% drop. This is primarily due to the return to production in South Africa from June when the lockdown was lifted. The recycled metal volumes also increased (to 505,000 oz) amid easing the restrictions and the incentives in the form of higher prices, although the level remained 6% lower compared to the same period a year ago.

According to the WPIC estimates, the annual metal supply will decrease to 18%, to 6.738 mn ounces, with a decline in demand by 5% only. It includes the decline in the refined metal production by 22% (or 1.3 mn oz), 400,000 ounces of which due to the lockdowns, and 900,000 ounces - due to the failure of the Anglo American Platinum (Amplats) facilities in H1 of the year.

In November, the largest platinum producer Amplats faced technical difficulties again at the Phase B unit on its main processing site Anglo Converter Plant (ACP) and closed it for repairing. As a result, the forecast for the refined platinum production this year decreased by 20%, to 1.4 mn oz from 1.7-1.8 mn oz; and for the palladium production - by 22%, to 0.9 mn oz from 1.1-1.2 mn oz. The commissioning time has not been specified yet. Another ACP unit (Phase A) damaged back in February is now also under reconstruction, which will be completed by the end of the year. At the same time, Amplats does not stop mining and accumulates the raw material reserves, which will be processed as soon as the failed units are put into operation. The company estimates that the losses due to the COVID-19-induced lockdown will be around 522,000 ounces this year. Amplats will ship about 1.2 mn ‘delayed’ ounces to their customers over the next 18 months. For 9 months, the Amplats platinum production fell by 17% compared to the figures a year ago, to 1.265 mn ounces, and the palladium production - by 14%, to 884,000 ounces.

The recovery of the refined metal production in South Africa next year will help to boost the global supply, which the WPIC expects at 7.865 mn oz (up 17% by 2020). The primary production will grow by 21%, and the recycling - by 8%.

Norilsk Nickel draws attention to the fact that the strong dependence of platinum production on South Africa, which accounted for about 60% of global production in 2019, does not benefit the prospects for this metal. The assets of South African producers have a long history of underinvestment, and there are often problems with electricity supply. “In our opinion, this raises consumer concerns about sufficient platinum production in the long term,” Norilsk Nickel said. This is also why it is difficult to implement the scenario of replacing palladium with cheaper platinum in autocatalysts, the company believes.


In contrast to supply, the global demand for platinum in Q3 surpassed the demand a year ago, up 32% to 2,648 mn ounces, the WPIC said. The economic stimulus and the lifting of the lockdowns have supported the demand in the main consumer sectors such as the automotive, jewellery and industrial ones. But the growth rates were insufficient to outperform the 2019 figures, compared with which the demand in the automotive and jewellery sectors was 3% lower, and 10% lower in the manufacturing industry. At the same time, the investment demand increased sharply (by 291%, or by 730,000 oz), compared to the 2019 figures mainly due to the demand from the ETFs.

The global vehicle production returned to their pre-pandemic levels in July and August due to the removal of rigid restrictions, thanks to the economic incentives and pent-up demand, and although it was 2% below the 2019 level, it is significantly better than the 43% collapse three months earlier. The earlier adoption of the China 6 emission standards in several provinces in China also helped platinum, as well as the growth in the truck production in the country.

The demand from the jewellery industry, despite a 27% growth compared to Q2, was below the level of a year ago, as the activity of the Chinese jewellers could not compensate for the decline in the purchases in North America and India. However, the platinum’s attractiveness to jewellers is driven by the difference in price with gold, which hit a record high above $2,000 per ounce in Q3. In some cases, the retail price difference between gold and platinum jewelry reached 25-30%, which attracted consumers. It resulted in the increasing number of jewellers offering their platinum jewellery lines, some of which are innovative, according to the WPIC survey.

The pent-up demand that revived the diamond market greatly in Q3 is also important to platinum. The jewellery has a positive association as an item used to mark meaningful relationships, special events, achievements and milestones, explains Vaishali Banerjee, Managing Director of Platinum Guild International (PGI), India. Under the COVID-19 threat, many consumers re-evaluate their priorities in life and gain a renewed appreciation for loved ones, and in these conditions, the jewellery is one of the products that represent personal meaning and is a key expression of their feelings for family and friends. This creates a great opportunity for platinum, he says, as its density and strength allow it to be the most secure setting for all gemstones and diamonds and is particularly sought after by the Indian consumers.

According to research ordered by PGI, the consumers are willing to spend even more during this holiday season than they usually do. The focus group consisted of 1,000 American consumers between 18 and 64 who expressed their willingness to purchase jewellery made of precious metals and worth at least $1,000. Notably, there are significantly more potential jewellery buyers among the millennials and the Gen Z consumers than among older respondents (49-50% versus 24% Boomers and 38% Gen X).

The global demand for platinum in 2020 will amount to 7.94 mn ounces, which is 5% (or 410,000 oz) below the 2019 figures due to a drop in demand in the auto industry (by 464,000 oz), jewellery industry (by 274,000 oz, and manufacturing industry (by 79,000 oz). The lower performance in these sectors will be partially offset by the strong investment demand, which will grow 32% (by 406, 000 oz) to a record 1.659 mn oz. The global risk escalation accompanied by the price adjustments has attracted the investors to the assets such as platinum, and the demand for bullions and coins will grow by 123%, to 629,000 ounces.

Investment demand for platinum will grow steadily, according to Norilsk Nickel. “We expect further acceleration in investment demand from both individual and institutional investors, as the expected higher stimulus from global central banks should lead to higher investment demand for precious metals in general and platinum in particular,” Norilsk Nickel said in its statement.


Another reason for the soaring investment demand highlighted by the WPIC is the key role platinum plays in the hydrogen-based economy. The metal is used in the fuel cell vehicles and electrolyzers that produce ‘green’ hydrogen from water.

The world is going to make a serious push over the next several years in the advancement of this technology, says John Caruso, senior asset manager at RJO Futures. “Hydrogen is gaining a lot of momentum around the globe as the potential clean energy alternative, assisting in further decarbonization of the environment,” he says. The support for the development of the alternative energy can be provided by the Joe Biden administration who has pledged to invest $400 bn over 10 years in clean energy and innovation. A ‘green’ hydrogen plant is under construction in Utah, which could become one of the largest ‘green energy reservoirs’ in the world.

According to the Hydrogen Council, the hydrogen could unlock about 8% of the global energy demand by 2030, if the green hydrogen production cost falls from the current $6 to $2.5 per kg. The development and scaling of electrolyzers is required using platinum to reduce the cost of this type of energy. The current price level for this metal, therefore, may represent an attractive entry opportunity taking into account the prospects for the alternative energy, Caruso says.

The pricing of the platinum-group metals (PGMs) are moving further away from the industrial value of these metals, says Jack Lifton, co-founder of Technology Metals Research, LLC, consulting the companies and government agencies on technology metals. Ironically, the rising cost of autocatalysts is driving the conversion of vehicular transport from dependence on internal-combustion engines (ICEs) to batteries, which, of course, will result in lower prices for the PGMs. It is the use of the PGMs in fuel cells that could be a bright spot in the future, Lifton believes. The fuel cells will be the preferred choice for heavy freight carrying trucks, thus using platinum to produce electricity by catalysis of hydrogen ‘fuel’. Obviously, for large vehicles, fuel cells are more efficient than batteries due to their smaller weight.

Potentially, the fuel cells, as the basis of demand for the PGMs, can replace autocatalysts and provide the PGMs dominance in the long term. Today, a typical fuel cell uses 30 grams of the PGMs that transform hydrogen gas into water and generate electricity at room temperature. If all the PGMs today were to be used entirely for fuel cell manufacturing, about 13 mn hydrogen powered vehicles per year could be manufactured globally. According to the Lifton’s calculations, the recovered recycled PGMs could be used to produce up to 4 mn fuel cell powered cars per year until the supply of scrap internal-combustion engines were exhausted in 20 years.

Igor Leikin for Rough&Polished