The World Platinum Investment Council (WPIC) says that, although platinum as an investment product in China is still a relative newcomer, it remains one with enormous potential.
WPIC regional head for Asia Pacific Weibin Deng says China is the second-largest market for platinum consumption in the world, after Europe.
In 2019, the country accounted for 26% of global demand, while platinum investment products were very limited in China just three years ago.
In fact, notes Deng, against the backdrop of the worldwide economic turmoil caused by Covid-19, purchases of platinum from the Shanghai Gold Exchange grew significantly in the first quarter of this year, rising from an average 171 000 oz a quarter in 2019 to 455 000 oz, as manufacturers in the jewellery and industrial sectors responded to the low platinum price and increased stock levels.
Over the last decade, China has become the biggest gold investment market in the world in terms of exchange trading and physical investment.
Deng explains that the rapid development of gold investment has laid out an extraordinary foundation for platinum, a precious metal that is “as good as gold” in the view of many investors, who are aware of the historic correlation between the price of platinum and the price of gold, and platinum’s diversification role in a portfolio – similar to gold.
He further adds that consumers in China have a well-established affinity for platinum as the pre-eminent jewellery metal, which has also created a useful stepping stone for generating a wider understanding of its potential as an investment asset.
“When you add into the mix China’s economic status as the world’s second-largest economy, with a growing middle class that is looking for reliable investment products, we see that there are real possibilities to stimulate investment demand for platinum.”
China is also making energy decarbonisation a priority and is one of the most proactive economies in terms of developing its hydrogen and fuel cell electric vehicle industry.
The nascent hydrogen economy is an important source of potential future platinum demand and investors in China have a growing understanding of this and, crucially, there is growing evidence that hydrogen technologies, using platinum catalysts, are poised to move to scale, which is helpful in reinforcing the investment case for platinum.
AIDS AND BARRIERS
Chinese banks have played an important role in the development of precious metal investment markets, which has not been seen in the rest of the world.
Deng explains that their strong distribution networks were an important factor in accelerating the growth of the gold investment market, and we are able to leverage on this to develop the platinum investment market also.
The country also trained more than 3 000 bank employees to help them better understand the platinum investment case and explain it to clients.
However, there are some barriers, says Deng.
“There is a less developed platinum market infrastructure − that is, we lack platinum futures contracts in China and have an illiquid secondary spot market. This is the barrier we are working hardest with Chinese partners to overcome in order to develop more investment products in platinum.
“While platinum investment bars and coins do not enjoy the same tax benefits in China as gold, they are no worse off than silver, which is a successful investment metal.”
Deng adds that, more importantly, the “long-only” cash-settled platinum account offered by Chinese banks has helped domestic investors obtain exposure to platinum that is fully backed by platinum vaulted offshore.
Further, the impact of Covid-19 has been profound. On one hand, it hit the platinum price hard in March, but it also created a buying opportunity for investors.
The global economy is going to face economic headwinds for some time, which creates uncertainty and increases risk. Precious metals, including platinum, are alternative assets that can protect against risk and they will be in demand.
“This will be supported by the increased awareness in China of platinum as an investment asset – this is an aspect we are passionate about and have been successful in growing,” concludes Deng.