Platinum Prices Could Be Poised For Major Upshift

Platinum, which often finds itself at the back of the precious metals grid, could well find its way from the back of the field by slipstreaming its way for a podium finish, predicts precious metals analyst, Sanjiv Arole.

In motorsports (Formula 1, Motogp, etc), slipstreaming forms an integral part of racing. Herein, ‘the partial vacuum created in the wake of a moving vehicle in the front is often used by other vehicles behind it in a race to assist in overtaking’. In the precious metals basket, a different form of slipstreaming takes place.

Usually, it is gold that takes the lead in any given rally, it figuratively punches a hole in the air and the other precious metals follow it in its wake. In a typical rally, the gold price could jump by say around 0.5% to 1% to set it off. The other metals then overtake the yellow metal by jumping by 2%, 3% or even more. Generally, it is palladium and silver that go far out and platinum is somewhere between the two and gold. Ironically, when there is a reversal and the market tanks, it is gold that holds steady and declines the least, while palladium and silver crash the hardest whereas platinum is again somewhere in between.

Consider the following: the Ukraine war that caused an upheaval in the global markets (stock markets as well as commodity markets) also impacted the precious metal prices. In fact, immediately after the war began, all the precious metals rose sharply. Gold moved up by 12.71% from the beginning of the year to reach $2,039.05 per ounce on 8th March, 2022, silver pushed up by 14.35% to $26.1750 per ounce on 9th March, 2022 from the start of the year. The PGMs too soared higher – platinum up by 19.52% to $1,151 per ounce and palladium by a whopping 78.65% to $3,339 per ounce (all prices London pm fix).

Then, when the Ukraine war began, even though all the precious metals zoomed ahead, it was palladium that took to the front. In fact, it soared to 3 times the platinum price ($3,339:$1,151 per ounce). Not only that, the war meant that 37% of the world’s supply of palladium and a major portion of platinum supplies that both originated from Russia were severally impacted. It also accelerated the process of substitution from palladium to platinum. Moreover, the 35% duty imposed by UK on Russian exports also further skewed the situation in the PGMs. Quite suddenly, the focus had shifted to platinum after a long hiatus of many years.

Palladium has already seen massive price spikes in 2022. As mentioned earlier, it was three times the price of platinum immediately after the Ukraine war broke out. Even after the current drop in all precious metal prices, particularly in palladium, its price, along with that of gold, is still more than double that of platinum (that is averaging below $1000 per ounce so far this year).

Apart from the war, palladium’s volatility was further accentuated when the London Platinum and Palladium Market (LPPM) decided to remove two Russian refineries from the good delivery list. As a result, higher palladium prices offer an opportunity for platinum. So much so that a recent World Platinum Investment Council (WPIC) report presented a strong case for substitution of platinum in place of palladium as a catalyst in the automobile industry.

Security of supply concerns are likely to override near term market balances due to the Ukraine war. These concerns could increase platinum for palladium substitution efforts and cause a change in inventory management strategies. The report also puts a number on the quantum of platinum that can substitute for palladium. It states that around 200,000 ounces to 400,000 ounces have been factored into the numbers estimated for 2022. Moreover, should the UK move to bar Russian imports of platinum and palladium by levying a 35% import duty replicated elsewhere; the substitution could be far more.

Then, with all metal prices showing a sharp rise due to the war, costs will only increase for the auto industry, giving further impetus to use cheaper platinum in place of the more expensive palladium. With efforts being made to reduce Europe’s dependence on Russian oil and gas, platinum gains prominence as a substitute for palladium.

The attempt to push for green hydrogen for the same underlines the need for platinum. For, both platinum and palladium will become increasingly important in hydrogen fuel technology. Platinum, being the catalyst that converts hydrogen and oxygen to electricity and as it can also withstand higher temperatures than most other metals, becomes the preferred catalyst in green hydrogen economy. Moreover, in hydrogen fuel cells around 50 gms of platinum are required while only 3-7 gms of platinum is used in a standard catalytic converter.

One more factor that could aid in the sustained price growth for platinum is the fact that prices are rising for the battery metals integral to electric vehicle manufacturing. Prices of raw metals have doubled in some cases, and those increases are passed on to consumers ultimately. It provides an opportunity for gas engine automakers to make their vehicles from environmental friendly, which would require higher platinum loadings in catalytic convertors.

Coming to fundamentals of platinum (As per the JM report for 2021): platinum moved into a surplus in 2021, as supplies recovered and investment purchasing collapsed; South African shipments surged as the industry recovered from Covid-19 disruption and processing outages; industrial purchasing was at record levels, with exceptionally heavy buying from glassmakers; auto demand was boosted by tighter truck legislation in China and higher platinum use in gasoline cars.

Platinum jewellery fabrication contracted, with weakness in the Chinese market; heavy ETF liquidation in the final quarter of 2021 pushed investment demand into negative territory.

Model wearing platinum earrings from the PlatAfrica 2021 Awards. Photo: © Anglo American

Total platinum supplies increased by over 25% to 6,197 thousand ounces from 4,936 thousand ounces. In fact, supplies from South Africa increased by over 43% to 4,611 thousand ounces up from 3,222 thousand ounces, whereas, supplies from Russia and the rest of the world actually declined.

While investment demand collapsed into negative territory, jewellery fabrication too contracted once again. The automotive and industrial sector consumption enjoyed strong growth. The auto sector benefitted from buoyant heavy demand and the increase in platinum for platinum substitution in gasoline catalysts, while industrial purchasing soared to fresh highs on exceptional activity in the glass sector.

With total disruption in Russian supply likely in 2022, supplies are likely to take a hit. While automotive demand is likely to show an increase in 2022, jewellery, industrial and investment demand is predicted to decline substantially. The platinum market is likely to stay in a state of flux in 2022.

Looking at the LBMA price forecast for platinum in 2022, it is evident that average price forecast for platinum is predicted to be 2.5% lower, at $1063.4 per ounce, than the actual average price of $1090.2 per ounce for platinum in 2021. The highest price is predicted to be $1,390 per ounce while the lowest price forecast is a lowly $771per ounce with the range for the year at $619 per ounce.

In reality, the platinum price this year first climbed by 26.34% to $1,151 per ounce in March 2022, only to decline sharply by over 25% to end on 24th June, 2022 to its lowest pm fix at $911 per ounce (London pm fix). Its average price till 24th June is around $997 per ounce, well short of the average price predicted for 2022. If the current price trends give any indication, then platinum price is likely to average even lower during the year. However, shortage in platinum supplies due to the Ukraine war could change the price scenario.

Meanwhile, apart from the news earlier about UK barring PGMs exports from Russia, by levying a 35% import duty, is the news that some of the G-7 countries have decided to ban import of Russian gold. Other G-7 countries are expected join the bandwagon. It is too early to say whether it will skew the global gold market. Or will Russia find a way around the ban just as it managed to turn the blockades on its export of gas and oil in its favour.

Finally, buoyed by the shortfall in Russian platinum supplies as a result of the sanctions imposed due to the Ukraine war as well the shift from palladium to platinum on account of price differentials between the two PGMs, the platinum price could get a huge boost. Moreover, technology issues with green hydrogen and cleaner gasoline-based auto cars could see platinum prices soar in the second half of the year. Platinum, which often finds itself at the back of the precious metals grid, could well find its way from the back of the field by slipstreaming its way for a podium finish! It could well be the year for platinum in 2022.

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