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LAWRIE WILLIAMS: Platinum coming late to the precious metals party

Among the main grouping of precious metals, platinum had been by far the poorest performer with its supply/demand fundamentals looking somewhat inferior to its platinum group metal (pgm) sister metal, palladium which has consequently surged past it in price.  For most of the past few decades platinum was the highest priced of the major precious metals, but in the past few years both gold and palladium have advanced and platinum fallen back, hit hard by a major supply surplus and a fall-off in demand for diesel-driven automobiles where platinum had been the primary exhaust emissions control catalytic metal and had provided its major market – and still does.  Meanwhile palladium has almost entirely replaced platinum as the exhaust cleaning catalytic metal for the far bigger petrol (gasoline)-driven small vehicle market. 

The substitution of palladium for platinum as an exhaust emissions control catalyst had initially been largely due to the previous price differential between the two metals with platinum, up until relatively recently, having been priced far higher than palladium.  Now the reverse is true and there has been speculation that emission control manufacturers for petrol-driven vehicles might revert to platinum-based catalysts, but we have seen little sign of that to date.  Continuing research has seen palladium, mostly in conjunction with small amounts of another even rarer pgm, rhodium (which has also seen a huge price spurt) is proving to be a very powerful exhaust emissions control catalyst, so platinum would have to play catch-up again if it is going to retake its dominant position in this market.  No doubt research is under way to see if an even more efficient platinum-based catalytic converter for petrol engines can be developed, but it is early days yet and the market remains to be convinced anyway that palladium will maintain its substantial price premium over any possible alternative – but the big hike in rhodium prices (now closing on $5,000 an ounce and around double its price of a year ago) could give another stimulus to platinum as a more cost efficient catalytic converter replacement catalyst for petrol engines too.

The platinum price has however caught fire over the past week or so – perhaps belatedly – although still remains at a price level substantially below that of gold and palladium.  As I write, the closing prices for these three precious metals at the end of the most recent week’s trading in U.S. dollars were gold - $1,520, the much more volatile palladium - $1,517 (having spurted $70 at one time on Friday and moved back almost level with gold) and platinum - $931.  So the latter has a good way to go before it could match or exceed the price of the other two, but with a 9% rise in the past week has certainly rewarded its most recent investors, if not its long term ones!  A similar rise this week would put it back at over $1,000.

The latest boost in pgm prices, which are in effect industrial metals, was probably due to a sensed, but perhaps illusory, easing in the U.S./China trade war as Chinese officials appear to have indicated a slightly more conciliatory position in that China would not seek to escalate the tit-for-tat tariff impositions.  But this may require a similar conciliatory statement from President Trump, and this may not be forthcoming as he could see the apparent Chinese move as a sign that U.S. pressures are having his desired effect.  China is currently the world’s biggest market for the automobile and truck sector, and is beefing up its environmental controls, so any apparent easing in the ‘trade war’, and a consequent boost to Chinese car sales, could be seen by the markets as beneficial to the future prospects for the pgm catalyst sector.

However, increased tariffs on Chinese exports to the U.S. kicked in on Sunday and if there is no easing of this indicated by the U.S., China could well revert to a more aggressive approach again.  Although the trade balance between the two nations is heavily skewed in the U.S.’s favour in terms of magnitude of imports, the Chinese will be well aware that the U.S. consumer will be paying the price of the increase in tariffs, despite President Trump’s downplaying of this consequence by claiming that the Chinese will be bearing the tariff costs.  The U.S. consumer is probably more inclined to question any adverse effects of the trade war than is the Chinese public in what is still effectively a totalitarian state.

The trade war is undoubtedly having an adverse effect on current Chinese GDP growth, but overall Chinese policy has to be to wean its industrial base off a reliance on exports (although these will remain important) in favour of domestic consumption growth and with its 1.4 billion people population, long term will likely succeed in this aim.  Meanwhile the U.S. only accounts for just over 20% of global GDP so there will be other potential markets for Chinese goods to be tapped but even so, the U.S. manufacturer and consumer will probably still need Chinese imports, even if they become more expensive because of the tariffs.  Undoubtedly the manufacturing sector in particular will be looking to source some of what is currently imported from China from elsewhere, but that is easier said than done.  Whether the higher costs of Chinese goods due to the tariff impositions will stimulate U.S. domestic manufacturing as President Trump hopes, is rather less certain though.

But even so, platinum appears to be on a bit of a roll, as the surplus of supply over demand appears to be diminishing, possibly exacerbated by the ever-continuing labour problems at the mines in the world’s largest producer, South Africa.  We do expect it to reach four figure price levels in the near future though, but as very much an industrial metal, but with additional precious metal overtones given its use in jewellery, the price could suffer in a general economic downturn – as could the palladium price too. 

Longer term the move to electric driven vehicles (EVs) could affect both pgms as pure electric battery driven vehicles do not use either.   But if fuel cell powered EVs start to dominate this market, which is a possibility, then platinum could benefit as it is used in this technology, but that would be ultra long term – perhaps not until the second half of the century, if at all.

01 Sep 2019 | Categories: Platinum, Palladium

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