Although investors usually buy gold and silver, you may have noticed the recent and steady climb in the platinum price per ounce. The price of platinum has grown and maintains its footing above $1,000 since the start of December. This extreme rise has not yet lost steam and the metal is on track to continue rising despite the mixed opinions of analysts. The 2021 platinum price has multiple influencers that can greatly contribute to the metal’s bull run. With a major supply deficit and higher demand both on the industrial and investment fronts, platinum just might have what it takes to outshine gold and palladium in 2021.
What Happened to Platinum In 2020 Q4 and 2021?
The platinum price hit a two-year high in January 2020 before dropping to a 17-year low in March. Most precious metals tanked at the start of the pandemic, but platinum was not able to rebound as quickly. Gold hit an all-time high in August but platinum did not break $1,000 until December. Platinum saw a massive decline in demand mostly because of diminished automobile production in 2020.
However, platinum steadily rose to reach its current price of $1264.37 (as of 11am EST). The steady growth of investment demand added to the metal’s supply deficit in 2020. However, the main factors weighing on the price of platinum come from three major fronts.
- One, V-shaped recoveries in automotive markets.
- Two, pandemic-related uncertainty and safe-haven demand.
- Three, a strained supply.
“Investment demand surged by 291 percent year-on-year in the third quarter,” World Platinum Investment Council (WPIC) indicated in a report from November 2020. Although people often turn to gold and silver for their safe haven hedge, platinum saw a renewed interest in 2020 and 2021.
Rohit Savant, VP of research at CPM Group, said “A key factor that is expected to help both platinum and palladium is the ample liquidity as a result of accommodative monetary and fiscal policy amid improving economic conditions […] Being industrial precious metals they should benefit from this environment.”
Both platinum and palladium have positive forecasts at this time, but platinum is expected to outperform the latter.
What Caused the Supply Deficit?
The biggest producer of platinum in the world is South Africa. Because of COVID-19 lockdowns, the platinum supply has a shortage. “The drop in prices in late February and early March was predominantly driven by a stark fall in demand from the automotive sector,” said Steven Burke of FocusEconomics.
“That said, restrictions on South Africa’s mining sector to control the spread of the virus dragged heavily on supply, which, coupled with safe-haven demand, helped prices to recover quickly in Q2. In H2 2020, the ongoing rise in prices was mainly driven by recovering global economic activity — particularly out of China as car sales in the country were healthy.”
A further development that majorly impacted the platinum supply until almost the end of Q4 includes the temporary shutdown of the Anglo-American Platinum (Amplats) converter plant.
A fire caused structural damage at Amplats, forcing it to turn off operations at two major locations of the plant. Ralph Aldis of US Global Investors pointed out that the shutdown of Plant A and B greatly reduced Amplats’ production. “ “[Amplats] curtailed guidance down to about 2.5 million ounces from (roughly) 3.1 million to 3.3 million. That’s almost 600,000 ounces less production. It should tighten the market.”
That being said, platinum group metals (PGM) miners resumed operations in the final quarter of 2020. Savant further indicated the issues were corrected. Now that supply is slowly accumulating once again, this adds further support for the recent run-up in prices. This 2021 platinum price can last, as long as there are no new interruptions.
Demand in the Automotive Industry
Thanks to international lockdowns, fewer people contributed to the demand for cars. This further influenced the automotive industry to produce fewer cars. Then, there was less demand for platinum and other group metals in 2020. However, the US rejoined the Paris Climate Agreement. This just might provide the base for all platinum group metals to steadily rise. This is because platinum group metals are key to achieving lower gas emissions, which helps uphold the aforementioned agreement.
Platinum and its related group metals are major components of catalytic converters to reduce harmful emissions. As more and more countries comply with the Paris Climate Agreement, demand for platinum may increase. However, the supply of platinum is not set to fully recover right away, making this precious metal a necessary rare commodity. Eventually, the supply will recover, but this will not happen overnight. WPIC foresees a recovery in the total supply with an estimated 17% year-over-year rate.
Platinum and palladium also got a boost in November after Biden won the 2020 presidential election. Economists and market analysts anticipate this administration will enforce tighter environmental regulations and support green energy tech advancements. This approach to a greener world may actually increase demand for platinum in the coming years.
Will Green Energy Kill the 2021 Platinum Price?
Despite the supply slowly recovering to pre-pandemic levels, some believe that this is only the beginning for platinum group metals. This is because even though investment demand could falter, hydrogen fuel cell production may further consume platinum. There is a higher demand for gasoline-powered vehicles over diesel engines at this time. Therefore, it seems fitting that platinum group metals can only gain from this development. However, not everyone is so sure about this.
Many economists anticipate higher demand for electric vehicles instead in the future. But, battery technology cannot yet support heavy-duty vehicles. This is why many companies are looking at hydrogen fuel cells as another alternative. These cells could one day replace gasoline-powered engines and more.
Hydrogen Fuel Cells and Platinum
Although cars use platinum group metals in catalytic converters, hydrogen cells still require platinum. There are current studies trying to locate an alternative, but as of this writing, platinum is the main component. Therefore, this green car market might actually continue to bolster the platinum price. Jonathan Butler, precious metals analyst at Mitsubishi indicated,
“Regardless of the ease with which the new administration can pass climate-friendly legislation from next year, rejoining the Paris agreement will be a clear signal of intent and will likely be followed by moves to improve vehicle fuel efficiency and regulate other pollutants as well as promote green energy. This is likely to be generally favorable to PGMs in emissions control, coming at a time when the auto industry is in recovery phase and as the rest of the United States follow California’s lead in addressing regulated pollutants and lowering average vehicle CO2 emissions.”
Trevor Raymond, head of research at the World Platinum Investment Council, also keeps an eye on the green hydrogen economy. He told Kitco News,
“For many governments fighting climate change has become a major priority, but fewer funds are available to make broad sweeping changes. The development of hydrogen as an alternative fuel source is one of the most cost-effective options we have […] The COVID-19 pandemic gave the world a glimpse of what it could look like. There was clean air where there has never been clean air, and I don’t think we want to go back […] Green hydrogen gives you short-term cost-effectiveness and a long-term alternative energy solution.”
What Are Analysts Saying About The 2021 Platinum Price?
When comparing platinum group metals right now, investors might compare the price of rhodium and palladium to platinum. They also might conclude these metals are doing much better because they are more expensive. However, the sharp recovery in Chinese commercial vehicle demand in 2020 further supported the platinum price, indicated by Savant. Consequently, platinum actually outperformed palladium in its recovery. This is because South Africa is the leading exporter of the metal. Russia also produces platinum, but it does not come close to South Africa’s leading record of exportations. Resuming operations greatly benefited the price of platinum at a much faster rate than palladium.
Here is a brief summary of what analysts are saying about the 2021 platinum price and PGMs.
Metals Focus analysts expect the palladium price to push to $3,000 this year. The analysts also noted the metal is on track to have its 10th annual supply deficit next year.
TD Securities analysts further support this idea. They also showed optimism for palladium in comparison to platinum. The Canadian bank agrees with the aforementioned price prediction by the end of next year. However, the bank’s average palladium price forecast is $2,656 an ounce for 2021. On top of that, TD analysts foresee the 2021 platinum price averaging around $1,013 an ounce. They also believe that prices may peak in the fourth quarter.
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