New Angolan diamond marketing policy helps lift rough prices – Wetherall

The Angolan administration of President João Lourenço introduced technical regulations for its new diamond marketing policy in 2018 whose objective was to improve the attractiveness and competitiveness of the national diamond industry and grow outside...


LGDs will continue to be an option for consumers, from the high-quality bridal market to the fashion market

Richard Garard is a founding member of the International Grown Diamond Association, which was established in 2016.  He serves on the Executive Committee of IGDA as President and Secretary General. IGDA was created to represent, promote and...

10 january 2022

Everything is design and design is everything

Born in the Basra pearls family, the first private jewelers to royal families, Ashraf Motiwala is the fourth generation to carry forward the legacy of A S Motiwala. Spearheading the prestigious family legacy, Ashraf Motiwala felt the need to breathe...

03 january 2022

Typical Jeweller is the initiative to promote the Russian jewellery industry

Typical Jeweller is one of the largest websites on the Russian Internet for the new generation jewellers. The total audience, including social media, is over 100,000 people per month. Every day, the latest news from the jewellery industry, educational...

27 december 2021

Johan Erikson: Demand for Natural Diamonds will always remain strong

First Element is a fully independent Diamond Services Company registered in Belgium and South Africa which has become one of the premier diamond valuing, marketing and cleaning companies in the industry. First Element is committed to providing a world-class...

20 december 2021

Platinum in 2021: declining prices but stronger positions

06 december 2021

The beginning of this year promised bright prospects for platinum, as well as for many other industrial metals. In platinum’s key automotive industry, the demand has been booming driven by the increased production of heavy-duty vehicles and the introduction of tougher emission standards. It seemed that the supply failed to keep pace with the demand growth, especially after the February accident at Norilsk Nickel.

The semiconductor shortage the auto industry faced during the year did not hit platinum as hard as it hit palladium, due to platinum’s lower dependence on the automotive industry (40% of demand is for platinum versus 80% for palladium). But since the simultaneous electrification of the transport industry threatens to undermine the position of platinum-group metals (PGM) as a necessary component to the autocatalyst manufacture, the market was very wary of the changes. Platinum corrected by about 25% by the end of October compared to its mid-February highs.

Meanwhile, platinum is now a good investment opportunity, according to industry players, given the aging commercial vehicle fleet and the promising hydrogen economy.

If investors could not yet see this, the major players in the industry succeeded in reacting. At the end of October, Impala Platinum announced that it was in talks to acquire Royal Bafokeng and hoped to be ahead of Amplats and become South Africa’s largest PGM producer with 3.45 mn oz annually. Implats’ interest in acquiring a competitor may indicate that the demand for platinum assets remains despite the industry’s losses due to a shortage of semiconductors, Bloomberg said.

Fundamentally, the platinum market fluctuated on the brink of balance this year. The World Platinum Investment Council (WPIC) acknowledged in September that the platinum market would be oversupplied this year as the production facilities were operating at full capacity and investment demand was weakening. The surplus was estimated at 191,000 oz (with a total market volume of 8 mn oz). In its previous survey in May, WPIC predicted that the market would be in short supply of 158,000 oz, making 2021 the third consecutive year with a shortage of metal.

The supply exceeded the demand in Q2 2021 - a surplus amounted to 161,000 oz, WPIC reported. The recovery post-Covid-19 demand in the automotive sector and industry failed to counterbalance the factor of mines operating at 97% and the processing of work-in-process stocks formed during the lockdowns in 2020. As a result, platinum shipments are expected to grow by 17% this year, while the demand is expected to rise by only 1%.

Norilsk Nickel expects a larger surplus in the platinum market this year, at the level of 1 mn oz. The surplus is due to the fact that the recovery in demand from the auto, jewelry, and other industries will lag behind the growing supply.

According to Norilsk Nickel, the demand for platinum (excluding investments) will grow by 9%, to 7 mn oz, mainly due to the recovery of the global auto market and increased use of metal in the truck manufacture in China. The introduction of the ‘China V’ regulation in the country has led to a threefold increase in the amount of platinum used to manufacture each truck. This will compensate for the continuing decline in the share of diesel vehicles in the European market and will result in a 20% increase in metal consumption in the automotive industry this year. Johnson Matthey estimates the platinum use in diesel vehicles will grow by 14% this year but will remain at least 10% below the pre-pandemic levels.

This year, the growth would have been more significant if not for the shutdown of the automobile production due to a shortage of semiconductors, WPIC emphasized. “The shortage of chips is limiting the growth potential of the automotive sector,” said Paul Wilson, CEO of WPIC. Umicore, one of the major autocatalyst and battery manufacturers, noted in October that the impact of the global semiconductor shortage on automobile production was stronger than initially thought.

The example of Stellantis (formed after the merger between Fiat Chrysler and PSA) will help to understand the scale of the problem; the company manufactured about 8.7 mn motor vehicles of 14 brands a year. The motor vehicle manufacturer ranking the fourth in the world by volume could not assemble 600 thousand motor vehicles - or 30% of its target production - in Q3 due to a shortage of chips. The semiconductor shortage, which initially appeared to be among the temporary problems caused by the pandemic, could continue through the next year, although initially, the largest automakers led by VW hoped that the problem would be resolved by the end of the summer. The head of Ford Europa Gunnar Herrmann believes that the restrictions may stay until 2024, and they are not limited to the semiconductors as the supplies of other consumables such as lithium, plastics, and steel are also unstable.

The shortage of chips is due to increased demand for gadgets during the pandemic and a sharp surge in economic activity amid logistics challenges, but it is also aggravated by the transition to electric vehicles. EVs need more chips; for example, while a regular Ford Focus production needs about 300 chips, the new electric cars by the same manufacturer should be equipped with 3 thousand chips.

At the same time, the automakers do not reduce the EV production, but give the priority to the EVs in response to the growing demand for decarbonization, and make all their efforts to launch their new product lines on schedule. The largest automaker VW intends to become the leader in electric vehicle production by 2025, outperforming Tesla and bringing the share of the EVs to 70% of the total sales in Europe by 2030. In addition to Europe, the electrification program is being actively implemented in China, where the authorities have set ambitious targets for reducing air emissions. However, this trend is not a surprise to the PGM producers. Norilsk Nickel notes that, at least until 2025, the electrification will develop mainly due to hybrid motor vehicles, which, like traditional ones, use autocatalysts.

While the chip shortages have not been able to slow down the electric vehicle development, another post-pandemic reality looks, at least for now, threatening for this ever-increasing sector. The growing energy crisis in China and, to a lesser extent, in Europe should signal to all investors that the electrification process using battery electric vehicles would face very serious obstacles, said Paul Dann, head of Northam Platinum.

The real sector, facing no shortage of chips, saw its rapid recovery from the pandemic, which will ensure a 25% growth demand for platinum in this segment by the end of the year mainly due to the oil and chemical industries, WPIC says. On the other hand, the demand from the jewelry sector, which is the second most important for platinum, will show very modest growth this year - just by 4% (after falling by 13% last year) - due to the dynamics of the jewelry manufacture in China and tougher competition with gold.

The investment demand will slow down after the spikes in 2019 and 2020, falling by 66%, although it will remain above the pre-Covid-19 average. This year, the demand from the ETFs in H1 was less significant than in H2 2020, as the investor appetite was quenched by high price levels. Platinum hit a 6-year high in mid-February, surpassing $1,300 per ounce. This was as the investors’ interest in platinum was fueled by widespread attention paid to the ESG issues and the expectations of the accelerated increase in the capacities generating renewable energy and, in particular, the hydrogen economy development.

The supply is growing faster than the demand. Norilsk Nickel forecasts the primary production to grow by 25%, to 6.1 mn oz, as the South African mining companies actively release their volumes accumulated in 2020. This factor significantly offset the losses incurred by the platinum production due to the interruption of the operation of the Norilsk Nickel’s mines caused by the flooding, which resulted in their losses of about 70,000 oz. The secondary supply due to recycling will increase by 11%, to 1.9 Moz, as the recycling facilities will return to their full capacity after a period of limited activity during the pandemic.

Norilsk Nickel believes that in 2022, the surplus in the platinum market will decline to 0.7 mn oz as the demand from the automotive and jewellery industries will continue, and the supply growth rate will slow down. The future of the demand for platinum is highly dependent on the prospects for the hydrogen economy development, the company says.

In the longer term, WPIC expects market fundamentals to improve through supply normalization and the renewed growth in the auto industry, where the manufacturers are increasingly using platinum instead of more expensive palladium. The automakers’ efforts to prioritize high-margin products like diesel heavy-duty vehicles also look good for platinum, unlike palladium, WPIC says.

Another factor is the investors’ interest in the hydrogen economy, that is, in the advantages that platinum can obtain by finding its application in hydrogen fuel cells. According to Paul Dunn of Northam Platinum, the hydrogen economy will be the basis for re-evaluating the role of platinum, which will reach parity with palladium (lost in 2017) during the 2020s. According to him, platinum has an excellent investment opportunity now as the growing demand for motor vehicles and an aging commercial fleet of vehicles will create significant demand in the future that is so far unsatisfied.

Nevertheless, the market is still conservative in its estimates of the immediate prospects for the metal. The analysts and traders surveyed by Reuters in late October lowered their forecasts for platinum and palladium markedly as the chip shortages forced the automakers to suspend some of their assembly lines. They expect platinum to be around $1,000 per ounce at the end of this year and $1,110 in 2022, on average, just 3% above the end-October levels. Three months ago, the same survey predicted $1,137.5 per ounce in Q4 of this year and $1,228 next year.

The substitution of palladium with platinum in autocatalysts is worth mentioning. According to Norilsk Nickel, the largest palladium producer, this project, despite its extensive media coverage, has not yet received widespread acceptance and may become a significant factor for the market in the long term only. Johnson Matthey notes that China’s automakers have installed platinum catalysts on a number of gasoline vehicles in an effort to cut costs amid high palladium prices and declining sales. But the scale of the experiment is still insignificant, such changes will take much longer outside China, and so far, the situation brings almost no changes in the demand for palladium and platinum, Johnson Matthey believes.

Igor Leikin for Rough&Polished