WPIC: Platinum Growth Catalysts Include Investment, Hydrogen Cells

Precious Metals
investing in platinum

Investment demand has been a key catalyst for platinum, sending values from a January start of US$1,061 to a six year high of US$1,296 weeks later.

Investment demand has been a primary catalyst for platinum’s price story in 2021. Values spiked from a January start of US$1,061 per ounce to a six year high of US$1,296 in mid-February.

Q1 of this year saw total demand climb 26 percent, or 405,000 ounces, to reach 1,969,000 ounces.

The precious metal‘s trajectory has prompted forecasts of a third consecutive annual deficit in the sector. A 5 percent uptick in demand is anticipated to create a deficit of 158,000 ounces this year.

“What we’ve seen (in Q1) is mainly the economic recovery from the pandemic has changed our view in terms of the platinum market deficits, increasing it from about 60,000 ounces to a deficit of 158,000 ounces,” said Trevor Raymond, director of research at the World Platinum Investment Council (WPIC).

As sectors continue to rebound from COVID-19 disruptions, platinum and the larger precious metals space are projected to grow as well. Raymond noted that demand in both the industrial and jewelry segments has already recovered.

For the head of research, the most significant impact for growth will arise from the automotive side.

“Platinum automotive demand will rise by 24 percent (in 2021),” he told the Investing News Network. “That’s mainly because of higher loadings per vehicle to meet target emissions (mainly Euro 6 and China 6a guidelines), and increasing platinum substitution for palladium in gasoline autocatalysts.”

In terms of precursors to the price spike in late January to mid-February, Raymond said long positions in the futures market were a factor. Another was the attention platinum garnered from fund managers.

“Many of those that own gold, they saw gold peaking at about US$2,000 an ounce,” said Raymond. “And as it pulled back, we saw a number of gold investors switch out of gold into platinum.”

Investment demand to remain high

Unable to get much higher than US$1,300 in February, platinum prices began consolidating in the US$1,150 to US$1,250 range through March and April.

As Q1 drew to a close, the bar and coin segment experienced a bit of a selloff stemming from Japan, home of the oldest platinum bar and coin market in the world.

“There’s a psychological level of about 4,000 yen per gram (in Japan),” Raymond said. “And that 4,000 yen per gram level was breached in March, and we did see some liquidation of physical bars and coins and a little bit out of the exchange-traded funds (ETFs) in Japan.”

By the end of March, 288,000 ounces had been shed from the platinum bar and coin segment. This was somewhat offset by a large uptake in ETFs.

Through the first three months of the year, overall investment demand for platinum increased 96 percent year-over-year to reach 140,000 ounces.

“ETF holdings grew for the fourth consecutive quarter in Q1’21, as anticipated substitution gains in auto catalysts and platinum’s use in hydrogen technologies continued to attract investor interest,” states the WPIC’s quarterly review.

Platinum’s inclusion in the hydrogen energy narrative is anticipated to contribute to the metal’s growth trend. As Raymond explained, “Platinum’s role in the hydrogen economy is twofold.”

Firstly, platinum is needed to build fuel cells. It is the only metal that is small enough to fit in cars and can also hold a large enough capacity to power the vehicle.

“Your home typically uses 2 kilowatts at the most,” said Raymond. “If you want 100 kilowatts in your car, the platinum fuel cell can handle that high-current density. And it can also give you the quickly variable load that’s required.”

Adoption in the fuel cell space is projected to bolster platinum demand by an additional 2 million to 4 million ounces in a decade.

Platinum’s secondary role is its ability to create green hydrogen.

“Basically, if you take either wind or solar power, and you electrolyze water using a platinum-based electrolyzer, you produce the hydrogen, and (if) you put that hydrogen into a fuel cell vehicle then that’s completely fossil fuel free. And that’s really at the heart of decarbonization.”

Creating green hydrogen could call for up to 600,000 ounces of additional platinum over 10 years.

Platinum-group metals and ESG

Aside from price activity, another aspect driving new investors towards platinum-group metals are their environmental, social and governance (ESG) standards.

“Platinum’s green credentials are pretty good for the fact that it does improve emissions out of vehicles. It can help decarbonize through the hydrogen economy, and it also purifies water,” Raymond noted.

“It does a whole lot of good stuff in chemicals; it reduces the amount of electricity and increases the yield in lots of chemical processes.”

Compared to other commodities with ties to conflict, the platinum space has been relatively free of controversy. There is also a large, robust and mature recycling sector for platinum and palladium birthed out of automotive recovery.

Raymond described platinum as a greener metal due to its high value and high recycling rate.

“It’s one of the most effectively recycled metals,” he said.

Despite describing South Africa’s orebody as a motherlode capable of supplying platinum for 100 years at current rates, Raymond believes fuel cell platinum will primarily be derived from recycling.

“(With) more fuel cell vehicles on the road, the very high recycling content reduces the requirements of primary mining. And in terms of ESG, as well as carbon footprint and lifecycle analysis, because platinum can be recycled six or seven times, each ounce that you take out of the ground can be used multiple times to achieve all those good things,” said Raymond.

“So (platinum) has got a lot going for it.”

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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