It is high time credit card companies rechristened their platinum cards as ‘GOLD’. Platinum prices are now almost 50 per cent cheaper to gold — $1,020/oz vs. $1,840/oz of gold.

At its peak in 2008, the metal was over double the price of gold – the former was trading at $2,069/ounce and the yellow metal was trading at $925/ounce. So, is platinum a raging buy now? Well, before delving deeper into fundamentals of the metal, one needs to understand what has made the metal cheaper and less precious than gold.

The grey-white metal derives about 40 per cent of its demand from autocatalysts. Autocatalysts are devices that are part of the exhaust system in cars that use as a catalytic converter to convert harmful emissions into harmless CO2 and H20. In diesel engine cars, platinum is used in the making of autocatalysts. Demand for platinum and its price is thus influenced by trends in the auto sector, especially the diesel vehicle market.

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After the Volkswagen scandal in 2015 when the company cheated emission tests in the US, preference for diesel engine cars started to drop on concerns over pollution. Global emission standards became more stringent and many countries including those in EU started reducing production of diesel cars. In the September quarter of 2020, the market share of diesel cars in EU was 29.4 per cent; in the same quarter previous year, it was 32 per cent and in September quarter 2018 it was 36.3 per cent (Source: European Automobile Manufacturers Association). In 2017, share of diesel cars in total auto sales in EU was about 45 per cent.

Demand vs supply

Demand for platinum from autocatalyst production which was about 3,000-3,200 Koz (thousand ounces) since 2013, dropped to 3,075 Koz in 2018 and 2,885 tonnes in 2019. In the current year, it is likely to end at about 2,421 Koz, down 16 per cent over the previous year as per the forecast of the World Platinum Investment Council (WPIC).

Platinum jewellery demand has also been falling every year — from about 3,000 Koz annually a few years back to under 2,000 Koz now. In 2020, estimates are that the platinum jewellery demand will total 1,826 Koz — down 13 per cent y-o-y. Investors are also not keen on platinum. While platinum backed ETFs saw an increase of 991 Koz in holdings of in 2019, in 2020 it is expected to increase by 530 Koz.

There is though one bright spot in the story of platinum: Supply losses due to pandemic-driven mine closures and outages at the Anglo American Platinum Converter Plant in South Africa (in the September quarter) are likely to push the platinum market into a sharper deficit in 2020. In the September 2020 quarter forecasts, WPIC projected total platinum supply in 2020 to fall by 18 per cent to 6,738 Koz, which follows a 22 per cent decline in refined production and a 10 per cent decline in recycling supply. Market deficit, the Council said, would be likely around 1,202 Koz in 2020, higher than the deficit of 89 Koz in 2019.

Outlook

Stepping into the New Year, some sanity may return into the platinum market. Given that price of another metal – palladium, also used as catalytic converter (mostly in gasoline-powered automobiles), has risen very sharply in recent times (above $2,200/oz now vs. $1,020/oz of platinum), there may be some shift in demand from palladium to platinum among OEM makers of gasoline engines.

Further, Chinese platinum jewellery demand, too, is likely to recover in 2021. Investors may consider platinum over gold. If gold rally continues without a breather in 2021 again, platinum prices may shore up. Mine production is likely to return to normal in 2021 but still may be below the average annual supply from 2015 to 2019, according to WPIC.

Indian investors wishing to invest in platinum can look for platinum bars/coins or invest in platinum-backed ETFs listed overseas.