Don’t Forget About Me! Checking In On The Platinum Market

The price of platinum is currently around US$1,000 an ounce. To give you some context, platinum hit a peak of US$2,213 an ounce in March 2008, surpassing even the record gold price in 2011. Back then, a severe supply shortage caused by power outages and labour strikes in South Africa, the leading platinum producer, was a key factor driving this spike.

Historically, platinum was more expensive than gold until 2015, when this trend reversed, widening the gap between the two metals. However, over the past two years, platinum has started to rebound. In 2023, its price increased by a notable 12.5%, and this year, it has seen modest gains of about 3.8%.

Sources of demand

Source: World Platinum Investment Council (2024)

Automotive demand

The largest single demand for platinum is in the automotive industry, where it is used in catalytic converters to reduce vehicle omissions. The demand for platinum in the automotive sector reached a seven-year high in Q1 2024 and is expected to remain strong throughout the year. A shift from electric vehicles to hybrids is helping to boost platinum demand in this sector along with stricter emissions regulations that require more platinum per vehicle. Platinum already dominates the diesel autocatalyst market and its use in petrol autocatalysts is growing as it substitutes for more costly palladium. There is also a bright future for platinum’s role in fuel cell electric vehicles (FCEVs), where it is used to turn hydrogen and oxygen into water, which produces zero-emission electricity for electric cars. Trucks, buses and other fleet vehicles are leading the growth in FCEVs and refuelling infrastructure is being developed.

Industrial demand

The second largest source of demand for platinum is industrial, which spans a range of applications. Favourable properties include its excellent electrical conductivity, resistance to high temperatures and corrosion and biocompatibility make it a critical component in many products. These range from LCD screens, fibreglass and optical fibres to pacemakers, catheters, and hard disks (among many more). Platinum is also an essential input into the petroleum refining process. Although industrial demand fell from a record high in 2023, it remains 17% above the pre-COVID average.

Jewellery demand

Prized for its durability, rarity and aesthetical appeal, demand for platinum jewellery increased 5% in Q1 2024 driven by 53% year-on-year growth in India.

Investment demand

Investment comes from physical platinum ETFs as well as coins and bullion.

Investment demand is on an upward trend as well, particularly in China, where coin and bar purchases are expected to see double-digit growth this year due to the metal's perceived undervaluation compared to gold.

A large supply deficit

Similar to silver, the platinum market is experiencing substantial supply deficits. In 2023, there was a shortfall of over 100 million ounces due to rising demand and lagging mine output, according to the World Platinum Investment Council (WPIC). This supply shortage continued into the first quarter of 2024, with total platinum supply being the second lowest on record since WPIC started tracking this data. Consequently, the market deficit for Q1 2024 was 369,000 ounces. Looking ahead, the WPIC projects that platinum supply will remain flat, with mine output expected to fall by about 3%, driven by lower output from South Africa and Russia. With demand anticipated to reach 7.6 million ounces, a market deficit of 476,000 ounces is projected for 2024. This will be the second consecutive year of a significant deficit, with above-ground stocks anticipated to decrease for the second straight year, reaching a four-year low.

Should Platinum Be in Your Portfolio?

Gold and silver each have bright horizons, which we’ve written about recently, but platinum has a place in most seasoned precious metal investor’s portfolio. It has a wide variety of applications and will play an important role in the world’s “green transition”, and with supply reaching a multi-year deficit, there is a strong case for optimism about platinum's prospects in the near to mid-term.

Source: ainsliebullion.com.au