White-hot platinum

What? You didn’t buy platinum, gold or the companies that mine these two metals this year? Join the club. But for those who did – hats off to you: a stonking 40% rally in the platinum price has taken the metal out of the long-term trading range of about $1,000 an ounce in which it’s been stuck for at least the past decade, to more than $1,300 last week.

With gold up 31% so far this year you’d have made a packet out of gold and platinum producers on the JSE, where share price gains range from 49% in the case of Harmony Gold (now off its earlier highs), to 66% for Impala Platinum, to 79% for Sibanye-Stillwater.

Currency spoke to the World Platinum Investment Council’s director of research, Edward Sterck, on this long-awaited rally in the metal. 

The World Platinum Investment Council has been flagging a supply deficit of platinum for ages – but only now has the platinum price really started to react. Why do you think that is? 

The answer is quite nuanced: like any commodity market, above-ground stocks are a key part of the functioning of a healthy market. If you think about base metals, they publish their warehouse inventory and so on. But for whatever reason, when it comes to the PGMs [platinum group metals], people tend to think that there will be no price response to the [supply] deficit until above-ground stocks are entirely depleted. Which isn’t the way markets work, but that seems to be the psychology with PGMs.

If you look at palladium in the 2010s, when it began its big price rally, the estimated above-ground stocks were probably three times higher than the platinum stocks today. It just shows it’s not the stock level but the perception of availability that’s key in terms of establishing value.

And the other thing to bear in mind with PGMs, unlike with the LME [London Metals Exchange], these are not reported above-ground stocks, they’re estimated. So there’s quite a wide range of estimates, and there are things you can include or exclude. And that would boost your perception of how significant or substantial above-ground stocks are, which would influence your behaviour in the market.

That’s the background to why the price didn’t react to the deficits in 2023 and 2024, and why the move we’ve seen this year has been quite sudden. 

Is there a big jewellery factor at play here too, given how expensive gold has become? 

Very much so. Demand is a key part of this and we’ve had these consistent deficits, but they’ve been supply driven. Over the past decade we’ve seen declining demand for platinum jewellery from China, while [demand in] the rest of the world has been growing at about 3.5% per year.

What we’re seeing now is quite a strong pivot in China, away from gold. And that is price related. Gold jewellery sales in China were down 32% year on year in Q1, and platinum was up 26%.

Now, the platinum market is tiny compared to the gold market, so a small pivot can have an outsized impact. But beyond China, if you look at other markets, particularly Europe and North America and to a degree Japan, where there’s a big white gold component in the market, particularly in bridal categories, we’re seeing platinum jewellery being priced at a discount to white gold at a retail level. And though gold’s been trading at a premium to platinum for quite some time, in the mind of the consumer platinum is still a premium product.

In China the market’s quite commoditised: you can pay by the gram plus a premium for fabrication, but in the West you typically go into a shop and pay the price that’s on the ticket. So retailers have taken advantage of that perception of platinum as a premium product and priced it accordingly – but now the price differential to gold is so significant we’re seeing that shift.

In most consumers’ minds, if you’re going to buy an engagement ring and you’re given a choice between a platinum ring and a white gold ring that’s more expensive, bearing in mind that white gold was introduced as a product to be lower cost in terms of platinum, you’re probably going to go for the platinum option. 

Does that only have a certain lifespan though, if platinum prices head up significantly again?  

If you look at the different markets, the Chinese market can move really quickly. Let’s talk about gold for a moment – why’s it performing so strongly. I’d say that gold is the commodity outlier – across all commodities really – and part of the reason is that it’s the currency alternative of choice. If you’re looking to minimise your exposure to certain currencies, there are limited alternatives, and gold is just a natural beneficiary of that. And given the ongoing uncertainty in the world and instability, I expect that gold is going to continue to perform extremely strongly. I think gold is just going to keep on walking its own path.

There are higher fabrication costs associated with platinum jewellery versus gold because it has a much higher melting point, it’s a much harder metal, so the tooling you need is different and more expensive; but nothing like the price disconnect between where platinum is today and where gold is.  

So demand for platinum jewellery should remain pretty buoyant for the foreseeable future? 

I think potentially so. One has to be mindful of the broader systemic risks out there: the trade barriers that are being thrown up are inflationary and will erode consumer purchasing power, so there are risks at the margins to GDP growth.  

What about palladium and rhodium? Because rhodium had quite a good start to the year, too.  

For rhodium, we’re seeing quite a lot of selling. The glass fibre and glass manufacturers who use a platinum rhodium alloy in their manufacturing facilities had capitalised on the higher rhodium price and reduced the percentage of rhodium that was in that alloy and sold excess rhodium back into the market.

I think if you look at the economics, because there’s a cost penalty in terms of operational efficiency by reducing the amount of rhodium in those glass-manufacturing facilities, we’d probably say that we’ve reached a point where there’s an economic incentive to stop selling.  

And palladium? 

They are both so exposed to the automotive industry – about 86% of palladium end-demand goes into catalytic converters; for rhodium it’s higher than that. So it really depends on the pace of electrification of the global drive train.

In our view that’s been happening a lot slower than others expected and we’ve seen everyone else’s estimates come down to meet ours, and we’re now all broadly comparable at about 30% [electric vehicles] by 2030. So it depends on how that proceeds, really.

But we’re going to see automakers who still have to hit their fleet-wide CO₂ production targets prioritise hybrids in order to generate those sales, and that’s still [reliant] on the internal combustion engine [ICE] and you still need PGMs in the catalytic converter.

I think the decline in ICE-containing vehicles is going to be quite protracted and that means higher-for-longer demand for PGMs – which is particularly important for rhodium and palladium. But that’s not a real growth story in contrast to platinum, where we are seeing growth in demand, and we haven’t mentioned investment where we’re seeing strong demand.  

How is that demand showing itself?

If you look at China it’s been a big buyer of gold investment products for quite a while and we’re seeing a bit of a spillover into platinum demand. The motivations are broadly similar, which are looking for a hard asset that is not linked to any one particular country’s economy or government control. 

_{Top image: Wikimedia / Alchemist-hp / Rawpixel / Currency collage.}