Platinum Grows In Strategic Importance
With the world embracing the hydrogen economy, platinum is growing in importance, shedding its veil as undervalued gold proxy to take up its rightful place on the precious metals podium.
Can you give us a view of how the platinum market value chain fared in 2020?
The COVID-19 pandemic severely disrupted platinum supply and demand this year, yet the investment case for platinum has become more compelling. Platinum’s demand fell less than its supply while its deep discounts to gold and palladium increased. The platinum investment value chain was severely disrupted as increased pandemic-related global risk drove investors to increase their ownership of precious metals, including platinum. Strong platinum bar and coin demand in North America led to product selling out in April. The New York Mercantile Exchange (NYMEX) futures volumes fell while 50oz bars were manufactured, mainly in Switzerland, and shipped to NYMEX warehouses.
This took several months to ease as refiners in Switzerland, working close to northern Italy, were forced to shut down early on as lockdown struck. When they were able to return to business, the focus of their work was on gold above everything else. Platinum product production has gradually resumed, and we see product coming back to market and starting to meet pent-up demand.
ETF holdings in North America have surged by over 550 000oz since March. Many investors see platinum as an undervalued gold proxy, but some are also seeing the strategic importance and growing demand for platinum from the burgeoning hydrogen economy.
What impact did COVID-19 have on the sector, in particular, production and price? How did platinum producers in South Africa and Zimbabwe fare?
In the first half of 2020, COVID-19 caused a significant fall in demand in the automotive sector and added to weakness in jewellery demand. However, it also forced mining lockdowns in South Africa which, combined with the major smelting process outage at Anglo American Platinum, reduced supply by more than the fall in demand. This has materially increased the size of the market deficit expected in 2020.
Margins of PGM producers in South Africa and Zimbabwe have increased as the prices of platinum, palladium and rhodium rebounded from March lows. Rhodium and palladium continue to trade at record levels. However, as the price of palladium increases, so too does the pace of palladium substitution. As this occurs, we expect automotive and investment demand for platinum to rise further.
Have there been any positives to come out of COVID-19/2020? What new developments are under way in the platinum industry?
The unfortunate high economic cost of COVID globally has meant that the affordability of the transition from internal combustion to electric vehicles has been slowed. There are two positives that come from this for platinum.
First of all, the slower transition to electric vehicles means the remaining internal combustion engines must be the most CO2-efficient possible. Automakers have been making the technical changes to reduce new vehicle CO2 emissions for several years. In the short term, we are likely to see increased platinum demand as automaker CO2-reduction strategies include the wide range of diesel and diesel hybrid vehicles already on sale and which have far lower CO2 emissions than their petrol equivalents and high platinum loadings.
Secondly, one key development that has gained momentum is the growth of the hydrogen economy. Increasing numbers of national governments are recognising – through tangible strategies, policies and initiatives – that the use of hydrogen as a fuel for primary power and transportation is one of the most cost-effective and sustainable routes to decarbonisation and a better climate future. The EU hydrogen strategy, for example, has been published targeting 40GW of green hydrogen power by 2030.
Platinum sits in the sweet spot for facilitating the hydrogen economy due to its use in not only generating green hydrogen, but also in fuel cells for fuel cell electric vehicles (FCEVs). FCEV growth is currently being led by buses, heavy-duty trucks and trains, with passenger cars a longer-term prospect. As the hydrogen economy and the FCEV market grows, it will create significant demand for platinum; this provides a robust basis as a long-term store of value.
What new initiatives have the WPIC rolled out recently, or are set to launch in 2021?
We continue to partner with major players in the industry. We have expanded our partner network to include partnerships with APMEX, the world’s largest online retailer of precious metals, and MTB, a leading precious metals merchant and financer, part of the MKS PAMP Group.
We have a strong pipeline of new partners, new programmes and effective products that will assist in enhancing awareness and distribution of platinum in 2021 and beyond.