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Updated 03:48 12/05/21

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Platinum touches 8-year high after mining disruption


Liam Sheasby, News Editor
11 Feb 2021, 12:56 p.m.

The price of platinum has today hit a peak of £925.02 per ounce; the highest the precious metal has been since September 2013. Platinum has gained £128.51 per ounce so far this month (16.40%) but around £110 of those gains have come in the past week.

MarketWatch reports similar gains for platinum ETFs, with gains for both the GraniteShares Platinum Trust of 5.49% and 5.03% for the Aberdeen Standard Physical Platinum Shares respectively. Several factors are driving the latest platinum price surge though, as explained below.
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Can't mine in the dark...

South Africa is home to a large portion of global platinum production. The Sibanye mine is amongst the top three producers, and also mines palladium, rhodium, and gold. Power disruption from beleaguered state-owned utility firm Eskom has meant that the mine has struggled to operate even at the reduced covid levels – hitting an already short supply of platinum.
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Predicting the future

Perhaps more importantly, investors have been taking into account fresh forecasts from the World Platinum Council (WPC) and Johnson Matthey respectively. According to the latter source, platinum had a global supply deficit of 390,000 ounces last year (a 5% drop according to the WPC). The metallurgists said that “demand continued to modestly outpace new supply” and investors are now acting on the basis of the post-Covid economic recovery and a renewed interest in platinum – particularly within the automotive industry and particularly from within China.

Georgette Boele of ABN Amro Bank NV spoke to Bloomberg of the “Optimism on the outlook for industrial and car demand, more stringent emission regulations and, in the last couple of days, some weakness in the dollar” and how these are the main factors at play for platinum's bumper week, though some investors are arguing that platinum's price drop in the last decade from being the most costly precious metal to one of the lowest could also be a psychological factor for some investors who believe it's only a matter of time before it enjoys a resurgence.

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The price of platinum for the past week in GBP, with the red line highlighting just how strong gains have been.

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Pollution

Pollution and the long-awaited 'green revolution' are also on the table as an obstacle that can't be held off on too much longer. Many countries are starting to tighten up vehicle emission rules as part of a long-term commitment to reducing carbon emissions. Clean Air Zones are one such policy in the UK, but many places are implementing alternative policies such as Paris' test of days without cars allowed, or a 50/50 split on which license plates can drive on which day.

While logically there should be a reduction in the need for platinum (and palladium) in new electric or hydrogen-based cars, the opposite is actually true. The new breed of environmentally-conscious vehicles still need these metals for fuel cells and similar energy conversion processes. According to Barrons, fuel cells could account for 6% of all platinum demand by 2030 according to their analysis.
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Money matters

Finally, there is the cost of palladium – a similar metal that falls into the Platinum Metals Group along with metals like rhodium and osmium. Palladium is very expensive, and given platinum and palladium are used towards the same ends... it's not inconceivable that automotive manufacturers switch to the cheaper metal of the two. Palladium is preferable given it takes a higher temperature to burn, thus being more resilient in petrol vehicles, but the difference isn't too massive that it would hinder most ranges of cars.

Given how platinum fell off and led to a surge in palladium prices though, there's nothing to say that a swap back to platinum wouldn't repeat this move in reverse and push platinum back above gold. Indeed, Neal Froneman – CEO of the Sibanye mining company – told Barrons that he believes platinum could copy the gains seen by palladium and rhodium and reach $2,000 per ounce within the next 4-5 years.

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