Platinum Price Update: H1 2020 in Review

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The first half of 2020 has weighed heavily on the platinum price. The metal started the year at US$963 per ounce, but had shed 14.9 percent by the end of Q2.

Heavily impacted by lower industrial demand and a slump in jewelry sales, the metal was prevented from registering gains in the first half of the year.

These issues were further exacerbated by production cuts and curtailments in South Africa.

Despite its overall loss in H1, platinum started the year on solid footing, gaining 5 percent during the first two weeks of 2020 to register a two year high of US$1,022 on January 14. Geopolitical unrest was a primary driver of precious metals in January as the sector made broad gains.

The metal subsequently fell below US$1,000 and remained in the US$900 range for most of February. By the end of that month, platinum had slipped below US$900 to trade in the US$860 range.

March saw record volatility across the broader markets. The precious metals sector was widely impacted, with platinum falling to a 17 year low of US$608. That was a 36 percent decline from its January value and 40 percent lower than its year-to-date high.

“The global spread of COVID–19 has resulted in heavy global economic costs in areas of the world that now include China, Europe and the United States,” Dennis Shen, director of public finance at Scope Ratings, said in a March FocusEconomics platinum update.

He continued, “The severity of the anticipated severe downturn this year will depend on the degree to which the virus spreads further, and to what extent public health, regulatory, monetary and fiscal policy responses are effective in countering.”

At the end of March, the platinum price had begun to claw back lost ground and was above US$700.

According to the World Platinum Investment Council (WPIC), Q1 of this year saw a total demand decline of 94,000 ounces quarter-on-quarter, which equates to 5 percent.

On the other hand, platinum supply experienced a decrease of 410,000 ounces, or 19 percent, resulting in a smaller-than-anticipated Q1 surplus of 124,000 ounces.

Platinum price update: Supply and demand trends

A country-wide lockdown in South Africa helped platinum prices hold above US$700 throughout April. The lockdown further strained the nation’s already fragile platinum-group metals (PGMs) sector.

In March, Anglo American Platinum (LSE:AAL,OTC Pink:AGPPF) pulled its 2020 guidance following a February explosion at its Anglo converter plant (ACP).

The explosion and a subsequent fire at the Waterval smelter in Rustenburg, South Africa, compelled the world’s largest platinum producer to shutter Phase A of the ACP.

A subsequent leak in the furnace of Phase B took it offline as well.

“The first half of 2020 saw PGM supply decline sharply, especially for platinum,” said CPM Group’s Rohit Savant. “While there were mine supply disruptions at various PGM-mining locations, South Africa was particularly badly hit. South Africa accounts for around 72 percent of global platinum mine supply.”

The reduction in supply was offset by a steep fall in industrial demand.

“While supply declined sharply, fabrication demand for these metals declined even more sharply, which weighed on the prices of these metals during the first half,” said Savant.

Platinum prices began strengthening in April, climbing 4.5 percent for the month, but were still 21 percent lower than their January value.

“Investors used the (March) weakness in prices as a buying opportunity based on improved prospects for the metals in the future, especially for platinum,” explained Savant.

During the first three months of the year, platinum bar and coin investment rocketed to 312,000 ounces; that’s a 300 percent increase from 2019’s quarterly average of 70,000 ounces.

“This was driven by a jump in bar and coin demand in both Japan and the US, while demand in Europe also increased albeit from a low base,” notes the WPIC. “The increase was largely driven by bargain-hunting following the price fall in March. Bar and coin investment demand is expected to surge by 115 percent to 605 koz in 2020.”

As investment demand rises, platinum is facing major challenges in its primary end-use segment, the automotive industry. The sector accounts for 40 percent of annual platinum consumption and has had to grapple with broken supply chains and dwindling demand.

Total automotive demand is forecast to slip 14 percent for the year.

Demand in the jewelry space is also projected to be lower in 2020. Rising gold prices are not expected to lead to an uptick in platinum jewelry demand — as CPM Group’s Savant explained, the two are used and priced differently.

“The discount of platinum to gold is not expected to have a meaningful positive impact on demand for platinum jewelry,” he said.

“Gold being a softer metal requires the addition of other metals like silver, copper, or palladium to harden it and make it useful in jewelry making; there also is different karatage for gold jewelry. Both of these factors reduce the amount of gold used in jewelry making.”

Because platinum is near pure, it does not need an alloy metal. It is also more difficult for craftsmen to mold and meld, resulting in the higher prices.

“But aside from the price of the metals, the economic uncertainty at present is expected to soften consumer demand for a discretionary purchase like jewelry,” said Savant.

Platinum price update: What’s next?

For Thom Calandra, the platinum sector’s growth hinges on the automotive sector, where the metal is used in catalytic convertors in gasoline and diesel vehicles.

Calandra expects to see supply shortages of the metal in the latter half of the year. He also anticipates an increase in “merger activity for mid-sized producers.”

The founder of the Calandra Report also pointed out that he expects prices to recover during H2 2020.

“Ivanhoe Mines (TSX:IVN,OTCQX:IVPAF) is a good barometer of that; Impala Platinum (OTC Pink:IMPUY,JSE:IMP) of course — both South Africa,” said Calandra via email.

If a second wave of COVID-19 leads to another lockdown in South Africa, the platinum space will be severely impacted.

“It would have a very meaningful impact on supply especially for platinum,” said Savant. “Even without a second wave there has been a lot of difficulty in bringing the mines back onstream due to the difficulty in implementing the coronavirus-related safety measures and operating of deep level mines.”

In its recent overview, the WPIC projects that demand will fall 19 percent year-over-year. Supply is estimated to fall 13 percent as a result of Anglo’s smelting troubles and the South African lockdown.

By the end of June, platinum was selling for US$819 — still 14.9 percent lower than its January price.

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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.