JOHANNESBURG (miningweekly.com) – There are a lot more people looking at platinum as a hard asset and potential hedge against inflation, World Platinum Investment Council director of research Trevor Raymond said on Monday.

Responding to Mining Weekly’s questions on what has been driving platinum up over the last two weeks, Raymond raised the hard asset and hedge view, along with an array of automotive industry developments likely contributing to the platinum price rising well above the $1 000/oz mark. (Also watch attached Creamer Media video.)

Raymond spoke in a Zoom interview of the high surplus forecast of 2021 potentially reducing quite significantly in 2022 owing to factors including:

• automotive manufacturers seemingly managing better with the automotive chips that they have at their disposal, which is allowing them to provide more vehicles into the market;
• major producers Sibanye-Stillwater and Anglo American Platinum revising production outlook;
• metal availability in the market appearing to be tight, despite the surplus forecast;
• platinum lease rates rising from 0.1% for the three years prior to the pandemic to over 2% towards the end of December;
• indications that fuel cell passenger vehicles might be arriving a little sooner than expected;
• growing realisation of the very high carbon footprint required to produce a battery electric vehicle;
• Euro 7 and China 6 emission control regulations for internal combustion engines pushing up platinum loadings; and
• the recognition that platinum will potentially be in greater demand than might have been recognised.

SURPLUS FORECAST

“What we published in November was a really large surplus of over 750 000 oz for 2021. When we published a forecast for 2022, there was also a surplus of over 600 000 oz. But what we said at the time is that surplus for 2022 could actually reduce quite significantly as new information became available to the market – and I think we’ve started to see some of that,” said Raymond.

“Firstly, we’ve seen some green shoots in the recovery in the automotive industry, the supply chain issues, the shortages of semiconductor chips. There seems to be some softening there and some improvement. Already we’ve seen some of those forecasts increase the amount of light-duty vehicles expected this year by about a million vehicles.

“The other thing is that the automotive manufacturers seem to be managing better with the automotive chips that they have. We know that they are trying everything to meet the strong, pent-up consumer demand and what they’re doing, for example, is that they are delivering vehicles with less features than perhaps those same vehicles perhaps had before,” he said.

Large touch screens have given way to vehicles with much smaller screens being delivered and things such as foot-operated tailgate opening are being dispensed with.

Automakers are finding ways to provide more vehicles into the market.

“The other thing we’re seeing, in December and recently, is that both the major producers, Sibanye-Stillwater and Anglo American Platinum, have revised their outlook for their production, their mining supply, over the next few years, and that seems to be flat-to-down for the next while.

“So, we think more investors are starting to realise that the spike in production was really the result of the unwinding of that backlog of material that built up due to those converter outages in 2020. We’re seeing some new information flow to the market, certainly putting pressure to reduce that 2022 surplus,” added Raymond.

Mining Weekly: We have seen the price of platinum pick up very nicely over the past two weeks, what do you believe is behind that?

Raymond: Yes, we have seen it. I think the strength is interesting. There are probably two or three main drivers. I think the first is that the gold price has been particularly strong. We do know that when the gold price is firm and moves up, it certainly moves platinum up with it. There are a lot of concerns about global inflation and certainly those inflation concerns are translated into more people owning gold, a firmer gold price. But in general, people are still looking for a hedge against inflation. They’re looking for hard assets, anything other than equities, and certainly platinum has got a lot of appeal. It’s certainly greatly under-valued. There are a lot more people that are looking at platinum as a hard asset and a potential hedge for inflation. The other thing that we’ve seen is that the metal availability in the market appears tight. Despite us forecasting the surplus, there seems to be less metal available. The platinum lease rate seems to be reflecting that. You’ll recall for the three years prior to the pandemic, lease rates in platinum sat at about 0.1%. We noted that in quarter four, that had gone up to over 1%. Then, towards the end of December, they had moved over 2%. So, if it’s possible that that backlog processing of Anglo was higher and there was more metal that came to the market in quarter four, and certainly then the price has been quite firm with the elevated lease rates, it certainly looks like metal’s tight and some of that was strong imports into China, presenting a need for us to unpack where that metal’s going. So, I think the investor interest at these levels certainly is elevated and perhaps playing out in the spot price.

What should platinum investors look out for over the next few months as indicators of how an investment in platinum might perform?

As we’ve said, this information is starting to flow. I’d say I suppose the first thing to watch out for is Anglo American Platinum’s quarterly production reporting and in that it might be evident whether they have managed to put a lot more material through the converter plant before the year-end, or even into January, and what that would mean is that the surplus to 2021 would be bigger but that certainly would bring down the surplus in 2022. The other thing to look out for is more information flow regarding the semiconductor chips and vehicle production, and in terms of demand, just the degree of substitution of platinum for palladium – it’s certainly something to look out for – all interesting development that could feed through in the market awareness of why platinum appears to be in surplus, yet is tight and also appears to be under-valued in the extreme.

Are there any other developments in the platinum market that we haven’t discussed?

Yes, I think one thing that’s relevant in the automotive space is that there’s been a very strong push suggesting that battery electric vehicles are the solution to all ills – and I think that’s been increasingly questioned over the last year. What we have seen is that there has been quite a bit of questioning about the very high carbon footprint to produce a battery electric vehicle, so you need to drive that vehicle for a very long time to get the benefit. So, I think in the short term, there’s a lot of questions. Also, the view is that the battery vehicle moves the emissions from the tailpipe to the primary power plant. I think that’s done two things. It’s highlighted the fact that perhaps fuel cell electric vehicles, which are ticking along nicely in the heavy-duty space, might be arriving a little sooner as fuel cell passenger vehicles as well. But perhaps more important in the shorter-term is that the transition between the internal combustion engine and electric vehicles is probably going to take a little bit longer. We’ve heard a lot more discussion about the plug-in hybrid vehicle being necessary and certainly the mild hybrids. What we believe is that there’s likely to be a slower transition to a full electric. There’ll be a lot more demand for internal combustion engines and that will mean more platinum, palladium and rhodium demand. We’ve had a lot of discussion about Euro 7, and I think that is relevant because I think there’s a recognition that there will be more internal combustion engines for longer, therefore, we’d better make them as clean as possible. That cleanness will be reflected in the CO₂ efficiency. I think that will push up hybrids. It will also push up loadings. We’ve got China 6 and certainly tightening regulation in Europe and the US. I think loadings are likely to be much higher and there’ll be a lot more internal combustion engine vehicles needed over the long term. Those two issues are playing into the price strength as well as the recognition that potentially platinum is in greater demand than might be recognised now.

PLATINUM AND PALLADIUM

Deutsche Bank Research express the belief in a note dated 11 January 2022 that platinum prices should start to trade at a premium to palladium by 2025.

The research unit expects platinum group metals markets to tighten progressively through this year and platinum to structurally outperform palladium.

The unit highlights rhodium prices as likely to remain elevated compared with historical levels as regulators – especially in developed countries – continue to tighten nitrogen oxide, or NOx, emission standards.

A 700 000 oz to a million ounce demand increase for platinum is estimated, at the expense of palladium, over the next two to three years, which should drive the platinum market into a deficit, and the palladium market into a surplus from 2024 onwards.