Investors remain ‘cautiously optimistic’ about platinum’s future

27th July 2022 By: Marleny Arnoldi - Deputy Editor Online

Platinum and palladium prices have been heavily influenced by high inflation this year, with financial markets remaining concerned about higher interest rates and real rates of growth.

Research and consultancy company CPM Group on July 27 presented a market outlook presentation for the two platinum group metals (PGMs), highlighting that the Ukraine conflict had also influenced PGMs pricing.

“We are still at a place of great uncertainty. We have seen financial market attitudes shift towards nuanced concerns and expectations. We have seen interest rates rise and various banks implementing protective monetary policies more forcefully than we ever expected at the start of the year,” said CPM managing partner Jeff Christian.

Interest rates have been rising more forcefully in the last 15 months than people may have expected, he noted, pointing out that the 9.1% current inflation in the US was largely a result of rising from very low levels.

“We are coming out of a decade where interest rates were particularly low,” he explained.

He added that a lot of the inflationary pressures have not been on the demand side of the economy but on the supply side.

Christian elaborated that manufacturers and shippers all paid higher interest rates and then tries to pass that cost on to the customer down the chain.

He pointed out that the US Federal Reserve had limited effects on some of the inflationary pressures that have been experienced, adding that the US was at risk of a “shallow and short” recession, having had a 1.6% contraction in real gross domestic product (GDP) in the first quarter.

The country is expected to record another contraction of about 1.8% in GDP in the second quarter.

Christian forecasts that there may well be a deeper recession happening in the US by 2026, which would influence demand for PGMs in the coming months and years.                            

PGM markets have been volatile for the majority of this year, in large part owing to western investors, fabricators and others being worried that the sanctions against Russia amid its invasion of Ukraine could lead to an interruption in Russian exports of platinum, palladium and rhodium.

This while the automotive industry, the single biggest consuming industry of PGMs, is struggling to recover after Covid-19 lockdowns since 2020 and the semiconductor shortage being experienced globally since 2020. The semiconductor shortage is also expected to persist for at least another year.

The automotive industry is also experiencing a shift from diesel-driven engines, which are a source of demand for platinum and palladium, to battery-electric vehicles (BEVs), which require metals such as lithium, nickel, cobalt and copper.

While PGMs will be required for decades to come for automotive and other catalytic converters, CPM hopes hydrogen fuel cell technology, which requires PGMs, can become more commercially viable and attractive to the market in terms of cost and ease of logistics.

Meanwhile, Christian says platinum prices peaked in recent years at about $1 800/oz in 2011 and started to come back down in September of that year, partly owing to the downgrading of US debt, which led to a massive sell-off of commodities.

“It also sometimes happens that institutional investors which have bought a lot of platinum in earlier years start selling and influence the price, usually in times of mining industries taking heavy blows – such as the six-month labour strike experienced in the South African platinum mining industry in 2014,” he points out.

The platinum price averaged $800/oz by the end of 2015 and has been trading under $1 000/oz up to the middle of 2021.

As PGMs started experiencing supply chain problems in the first half of 2021, the price shot up to $1 300/oz in some months of the year and declined back to $800/oz by mid-2022.

The average price for platinum in 2021 was $1 090/oz, which is the highest since 2014. The average price for the first half of 2022 has been $987/oz.

In turn, palladium prices averaged $2 392/oz in 2021 and $2 178/oz in 2020. The palladium price had been growing sharply since 2016, when the price averaged less than $550/oz.

Palladium hit highs of $3 019/oz in March this year after Russia invaded Ukraine, but prices have since come down to an average of $2 000/oz currently.

Christian pointed out that the majority of global palladium stocks sat with investors, particularly long-term investors and not speculative investors, therefore “a lot of the palladium is sterile to the price right now”.

Rhodium prices shot up to almost $30 000/oz in 2021, after averaging $20 650 in 2020.

In the first half of this year, rhodium prices came down to about $17 166/oz, with the markets remaining relatively tight. Prices have been constrained by interruptions in automotive sales.

Moreover, Christian said the platinum to palladium price ratio remained at historically low levels, with platinum being at a near record discount to palladium.

The platinum market remains in a surplus as of 2021, and is expected to remain in surplus, with investors remaining “cautiously optimistic” about the metal’s future.

The palladium market was in a surplus for the second consecutive year in 2021, with investors buying metal on hopes of revival of demand. Luckily, palladium has the ability to sustain higher prices over several years.

The rhodium market moved into a surplus in 2020; however, demand remains tight owing to a deficit between 2010 and 2020.