Platinum Outlook

If the global automotive industry produced, in future, fuel cell electric vehicles in numbers adding up to 6% of annual production, this would double annual automotive demand for platinum, says World Platinum Investment Council (WPIC) CEO Paul Wilson. In 2017, the automotive sector consumed 3.3moz of platinum – 43% of the total platinum demand in 2017 which amounted to 7.7moz.

“You don’t need that many hydrogen fuel cell vehicles to make a massive difference to platinum demand. The amount of platinum contained in a hydrogen fuel cell is three to four times the amount that is typically used in the exhaust cleaning system of a diesel car.”

A number of car manufacturers are adopting hydrogen fuel cell technology. According to the WPIC, car brands such as Toyota, Hyundai, Nissan, BMW and Mercedes are leading by example and creating hydrogen fuel cell vehicles and developing new efficient car concepts. China’s appetite to reduce pollution levels is also driving significant demand for clean automotive technology. The largest population in the world represents huge demand potential for hydrogen fuel cell vehicles. China is incentivising the adoption of fuel cell vehicles with cash offers many times higher than for battery-electric vehicles.

One barrier to progress with hydrogen fuel technology in cars remains the relatively small number of hydrogen fuelling stations in place. However, significant growth in this infrastructure is being planned and implemented.

“Currently, there are over 300 hydrogen fuelling stations worldwide – located in the US, UK, Europe, Japan and China. Plans are under way to quadruple the number of fuelling stations currently available. In the next seven years, China is poised to build an additional 300 hydrogen fuelling stations. Given China’s propensity to meet its targets earlier than anticipated, we expect these fuelling stations to be built sooner than promised,” says Wilson. He says introducing a hydrogen filling station at existing fuelling centres costs roughly $1-million to $2m, depending on the scale of the facility.

While costs to the consumer are currently another hurdle to widespread adoption of hydrogen fuel cell vehicles, it is anticipated that increased popularity and economies of scale will see these vehicles become much more affordable with a greater selection available in the near future.

Unlike everyday vehicles, the number of hydrogen fuel cell vehicles used in industry continues to soar. Hydrogen fuel cell fork lifts are operated inside large warehouses and storage facilities, where they move containers and goods. Demand for hydrogen fuel cell technology for trains is also starting to pick up pace.

“Fuel cells are being increasingly used in port transportation vehicles, buses, fork lifts and in everyday cars. Fuel cell vehicles use platinum as the catalyst in the reaction to combine hydrogen and oxygen to produce electricity and heat, with the only by-product emission being pure water,” says Wilson.

Apart from the automotive sector, platinum is used in a wide range of industrial applications, including for example chemical production, glass and glass fibre manufacture, and in medical and biomedical applications. Platinum is used in heart pacemakers, stents for vascular repair and in keyhole surgery instruments. Platinum is key to efficient crop production due to its use in the production of nitric acid – a key building block in fertiliser production. According to Wilson, demand for platinum from non-automotive industrial applications is forecast to be up by 5% in 2018 over 2017.

“We view the hydrogen fuel cell as a fantastic and transformative technology. We are extremely enthusiastic about the potential of the hydrogen economy going forward and what this means for platinum,” states Wilson.

WPIC stimulates platinum demand globally

Among the WPIC’s educational initiatives is its regular publication, Platinum Quarterly. This quarterly analysis examines current platinum market supply and demand, and aims to help investors better understand the platinum market. In addition, the WPIC’s 60 Seconds in Platinum is a regular “insights” article exploring lesser-known characteristics, qualities and applications of platinum.

“We develop accessible content to ensure that all investors who are interested in platinum have access to informative, educational content,” Wilson says. “In addition, our team visits as many large institutional and wealth investors as possible around the world to meet their information needs so that they understand the platinum market and have the right knowledge for when and if they want to act,” Wilson adds.

The WPIC encouraged BullionVault, an online precious metals trading platform, to introduce platinum to its product offering. The WPIC has also worked with The Royal Mint, Valcambi, the precious metal refinery, and a number of banks and financial institutions, to increase investment in platinum that directly increases the volume of platinum bars and coins being sold globally.

Joint venture partnerships help to make more platinum investment products available and the WPIC has set up an office in Shanghai to further promote platinum as an attractive investment asset in China, the world’s largest platinum consumer market with 2moz of platinum used per annum.

“The rise of China’s wealthy middle class represents a huge potential base of platinum investors, especially for platinum bars and coins,” says Wilson.

In the past three months, the WPIC announced two joint venture partnerships with CNOOC Taiyuan Precious Metal and with Shenzhen Hengfu Yingjia. These partnerships have made platinum bars available to be purchased by members of the public. The aim of these and similar future partnerships is to develop the physical platinum investment market and increase the number of available platinum products.

Wilson adds: “Over the past few years, the WPIC has helped interested partners to distribute platinum more effectively to investors. In so doing, we have helped partners to sell several hundred thousand additional platinum ounces over the last few years. In this way, we are increasing the demand for platinum.”

One other recent high-profile partnership was for the 2018 Athletics World Cup. The WPIC sponsored a platinum trophy for the event held in London in July this year. The trophy took more than 650 man-hours to create, stood at 512mm tall and weighed over 6kg.

“The eight top athletics nations, including China, France, US, Germany, Poland, UK, South Africa and Jamaica, competed for the platinum trophy. Through the event, people across the world were reminded of platinum’s long-standing premier status,” says Wilson. Platinum medals were also awarded to recognise the ultimate sporting achievement of the winning country’s (US) victorious athletes, alongside the main platinum trophy.

Platinum outlook

Discussing the current state of play in terms of supply and demand fundamentals, Wilson states that there has been a slightly softer market for platinum in the past 18 months.

“Platinum production has, for a number of years, slowed down due to underinvestment by miners, whose economics have not been strong. We have also seen declining demand. There were deficits in each of the five years 2012 to 2016; some as large as 8% of annual demand. In 2017 and forecast for 2018 there are surpluses of just under 4%. In 2018 both supply and demand are expected to fall 2% with the level of surplus unchanged.”

Owing largely to the negative sentiment in the marketplace caused by the VW emissions scandal in the US, and softening jewellery demand in China, the price of platinum has “not performed very well in the last few years”, says Wilson.

“Our belief is that the negative view and sentiment in the marketplace has gone on for too long and has not taken into consideration the extensive improvements made by the automotive sector to develop cleaner diesel vehicles. A majority of the new diesel cars developed recently are in fact ‘incredibly clean’. In fact, Mercedes-Benz has invested €3-billion in the development of clean diesel engine technology for diesel cars.” Experts have said that buying a vehicle with one of the new clean diesel engines is at least as benign for the world as using a battery electric vehicle.

The WPIC is of the view that “there will be more diesel vehicles on the road than people expect, and these vehicles will be given higher platinum loadings to clean up their exhausts even more”.

According to Wilson, industry rumours indicate that “substitution of palladium by platinum in the exhaust systems of gasoline cars is taking place”. The key reasons for this substitution include a soaring palladium price, automaker concerns regarding unavailability of palladium and the fact that the largest palladium producer, Russia, may suffer supply disruptions due to threatened sanctions.

“We are told that the replacement of palladium with platinum is equally effective in cleaning gasoline car exhausts. The change will typically be made at the time of introduction of new engines and variants, rather than redesigning existing vehicles. We believe that the fuel cell phenomenon will start to reflect in platinum demand in the next two years and that this will have a positive impact on the market view for platinum use in the automotive sector.”

Over the long term the industrial applications of platinum are well correlated with global economic growth and continued growth in these applications is expected. Demand tends to be bumpy rather than volatile as new plant capacity construction uses significantly more than the replacement of the small amount of catalyst lost during manufacturing processes.

“We expect that platinum demand growth is likely and will exceed the expectations of most commentators while challenges associated with platinum mining supply are unlikely to ease in the short term. Based on this, we believe that there could be a tightening in the market in 2019 and 2020.”