LAWRIE WILLIAMS: Platinum’s time for the spotlight?

After a few years now of underperforming the other precious metals – notably palladium – platinum looks like it may be making something of a comeback.  Latest research published by the World Platinum Investment Council (WPIC) – admittedly a body financed by the platinum producers themselves – shows that platinum supply has moved into a substantial deficit this year, and the WPIC is also predicting another deficit, albeit a much smaller one, next year too.

Followers of the platinum group metals (pgms) will be well aware that the huge runup in the palladium price over the past three years, which has made it by far the best performing major metal in the precious metals sector, has been very much due to its very considerable supply deficit.  Could platinum now follow suit?  We think that there is an excellent chance that platinum prices will move up faster in percentage terms than the other precious metals - perhaps at the expense of palladium – a metal for which we continue to see long term difficulties ahead in the supply/demand equation.

Longer term followers of the precious metals will be well aware that up until only a few years ago, platinum was more expensive per ounce than gold, and hugely more expensive than its sister metal, palladium.  Indeed the price differential with the latter was the prime cause of platinum’s price downfall.  Its big technological value, which had seen its price soar, had been as the catalytic element of choice in exhaust emission control systems.  However the huge price differential between it and the somewhat similar palladium had seen a vast amount of research into replacing platinum-rich catalysts with far less costly palladium rich ones. 

At the time platinum was several times more expensive than palladium so the incentive to undertake this research – which ultimately proved to be highly successful – was intense.  It resulted in palladium-based catalytic converters becoming dominant in the enormous market for petrol (gasoline) fuelled internal combustion engines, leading to a huge upsurge in palladium demand – an upsurge which increased almost exponentially as environmental legislation advanced and catalytic loadings had to be increased.  Platinum has remained the catalytic element of choice in exhaust emission control systems for diesel powered units though.

One other supporting comment for the increased usage of platinum going forward from the WPIC analysis was the as-yet unconfirmed suggestion that palladium’s current huge price premium over platinum (around $1,300 an ounce) is likely leading to exhaust emission control system manufacturers as being likely to switch back from palladium-based catalysts to platinum-based ones, but not something the control system manufacturers are yet prepared to publicise given its likely effect on the price balance between the two metals.  They would rather tie down longer term supplies of the currently far less costly platinum while the price is in its favour.

The current most important factor in our suggestion that the price of platinum may rise, while other precious metals may be going through a fairly serious price dip, is the change in supply/demand fundamentals with platinum supply moving into deficit.  Should the reverse substitution of platinum for palladium in the huge emission control system market even begin to take place, platinum’s supply/demand fundamentals and price could increase quite sharply.  The palladium price may stay reasonably strong for some time yet as demand for light vehicles should pick up as the global economy returns to anywhere normal and any switchover to platinum catalysts would probably not be rapid. 

However we re-iterate our prediction that the long term outlook for palladium is not positive.  The growth in take-up of electric vehicles (EVs) may well accelerate far faster than current forecasts suggest – particularly as advances in battery technology mean far longer ranges on a single charge may be possible.  And pure EVs have no need for palladium as neither do other possible non-polluting drive systems under development (like hydrogen and fuel cell powered vehicles).  Already several European countries are legislating against the manufacture and sale of petrol driven vehicles within the next two to three decades, and we would anticipate the rest of the world – even the U.S. under the more environmentally conscious Biden administration – following this path before long.

01 Dec 2020

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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