What happened to platinum in H1 2022? This platinum price update outlines market developments and explores what could happen moving forward.
Click here to read the previous platinum price update.
The platinum market saw some rebound in auto sector demand during the first half of the year; however, industrial fabrication declines weighed heavily on platinum prices, keeping the catalyst metal’s value below US$1,160 per ounce.
Supply chain issues have been further compounded by inflation — which reached a 40 year high — and rising energy prices driving the costs for transporting commodities higher. According to a Platinum Group Metals report from Metals Focus, container freight costs remain six times higher than they were before the pandemic.
H1 2022 has also been marked by uncertainty brought on by market volatility and spurred on by the Russian invasion of Ukraine, rising interest rates and new waves of COVID-19 lockdowns, particularly in China, where a no-COVID policy has been enacted.
Platinum prices started 2022 at US$952.87, facing demand constraints from 2021, as production of internal combustion engine vehicles (ICE) remained flat and 14.8 million units short of its pre-pandemic levels.
Platinum price performance, H1 2022
Chart via TradingEconomics
Following Russia’s advance into Ukraine, platinum values surged to a H1 high of US$1,154 per ounce as concern about the future of supply out of Russia intensified. Russia ranks second in terms of annual production of both platinum and palladium, outputting 19,000 kilograms of platinum in 2021.
Platinum price update: Auto demand a key end-use segment
The first quarter of the year saw total platinum demand contract by 10 percent despite strength in the automotive segment. The decline was attributed to a reversal in industrial demand from 2021’s record highs, flat jewelry consumption as well as weakness in investment.
“The strength in automotive demand is notable considering production capacity constraints due to the ongoing semiconductor shortages and the negative effects of Russia’s invasion of Ukraine, and reflects increased loadings and ongoing substitution for palladium in gasoline vehicles,” the World Platinum Investment Council’s (WPIC) first quarter review read.
For Metals Focus, a forecasted 7 percent increase in automotive production this year is anticipated to bolster platinum autocatalyst demand by 16 percent year-over-year.
“Higher platinum loadings, particularly in China from last year’s China VI roll-out, also contribute significantly to autocatalyst demand’s growth,” the Platinum Group Focus for 2022 notes.
The metals consultancy firm pointed out that substitution of palladium with platinum should add tailwinds to platinum prices, particularly in China, where the market is more price-sensitive and responsive.
“We need, however, to acknowledge considerable downside risks to the forecast caused by the impact of China’s COVID lockdowns and the Ukraine crisis on the supply chain and the chip shortage,” they added.
Platinum price update: Palladium substitution a potential long-term catalyst
On March 8, palladium prices soared to an all-time intraday high of US$3,189; that day, platinum was trading for US$1,154.20.
Palladium’s sustained price activity has prompted many auto manufacturers to begin the process of substituting platinum for palladium in catalytic convertors, especially as emissions standards become more stringent and loading levels need to increase.
Although tougher greenhouse gas emissions regulations can add to growth in platinum demand, a decline in other auto segments will continue to weigh on the market in the coming years, according to Rohit Savant, VP of research at CPM Group.
“Another factor that's been hurting platinum demand has been the shrinking market share of diesel passenger vehicles in both Europe as well as India, where market share at the end of 2021 was back down to levels that we saw in the 1990s,” he said during a July 27 platinum group metal (PGM) webinar.
"This is something that we think will continue in the coming years and will also act as a headwind to platinum fabrication demand,” he said.
As diesel vehicle demand retracts, the market for gasoline powered vehicles “seems to have stabilized,” he explained, noting that PGMs will also be needed for some of the alternate auto propulsion technologies that are becoming a larger segment of the market.
Both hybrids and fuel cell vehicles require PGMs in some capacity, which bodes well for the market; however, battery electric vehicle demand could offset some of this growth as those vehicles use no PGMs.
Regardless, the alternate propulsion market remains a small segment of the auto sector at the moment. For internal combustion engines, which dominate the lion’s share of the market, Savant believes this segment will drive fabrication and investment demand.
“Fabricators in the auto industry, for example, have started to reintroduce platinum in gasoline auto catalysts which is one of the most positive fabrication demand fundamentals for platinum in the medium to long term,” he said.
Platinum’s value compared to palladium will continue to facilitate this change.
"The platinum to palladium price ratio, which remains at historically low levels, has clearly been something that has benefited platinum with increased interest for platinum both from investors as well as fabricators,” Savant said.
Platinum price update: Investment demand to face headwinds
The investment demand side of the platinum market continues to be divided as investors look to bars and coins while turning away from exchange traded funds (ETFs) and products. In fact, purchases of bars and coins grew by 39,000 ounces in Q1 2022 compared to Q1 2021.
“However, despite particularly strong demand in North America, global demand growth was limited by US dollar price strength sustained by a significant subsequent weakening in the yen which drove local platinum prices to their highest since May last year and which encouraged profit-taking among Japanese investors,” a May press release from the WPIC states.
As such, this trend is expected to be ongoing with total global bar and coin demand for the full year anticipated to decline by 23 percent.
Additionally, after registering three consecutive years of gains, 2021 marked a year of net outflows in the ETF segment and it appears 2022 will be much the same.
“Liquidations in Q1’22 stemmed primarily from one European ETF issuer and were contrary to investors’ finding hard assets attractive due to surging inflationary worries and elevated geopolitical and economic uncertainties,” noted the WPIC. "A modest inflow in ETF holdings over the remainder of this year is forecast, resulting in a 50,000 oz full-year outflow.”
Platinum price update: Potential future drivers
Similarly to most commodities, platinum is expected to battle headwinds from inflation, interest rates and supply challenges.
However, overall demand is forecasted to grow 2 percent year-over-year for the metal. Residual production challenges out of South Africa paired with uncertainty around Russian supply is expected to manifest as a 5 percent reduction in supply, which will shrink the surplus to 627,000 ounces, down from 2021's 1.1 million ounces.
“With the backlog of semi-finished inventory built up during the 2020 Anglo American Platinum (LSE:AAL,OTC Pink:AGPPF) converter plant (ACP) outages now processed, we are left with the stark reality that South African production is actually below where it was in 2019,” Paul Wilson, CEO of the WPIC wrote.
“This, combined with a massive drop in recycled material, points to constrained supply for the coming months, as demand continues to grow,” he continued.
After falling to a H2 low of US$899.04 on June 30, platinum prices have begun to recover, edging as high as US$950 in mid-August. Still well off the all-time high of US$2,171 set in early 2008, Wilson is optimistic about the metal’s role in the growing green economy as well as its place in the energy security narrative.
“In addition to decarbonisation, security of energy supply for all Governments is now a far greater issue than it was,” the CEO of the WPIC added.
“The role of green hydrogen in reducing European gas imports could drive a strategic acceleration of electrolyser construction, which would benefit platinum directly but also support the infrastructure needed for broad-based commercial adoption of FCEVs (fuel cell electric vehicles).”
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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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