Marco Mencini, Senior Portfolio Manager Equity di Plenisfer Investments SGR
Platinum is rare (only the 72nd most common chemical element in the earth’s crust, out of 92 natural elements) with 80% of the world’s economically viable reserves located in South Africa.
Platinum is prized for its catalytic properties; i.e. its ability to speed up a chemical reaction without itself being changed in the process. Platinum’s physical and catalytic properties mean it has a wide range of uses in industrial and consumer applications, and for investment. Currently, automotive represents the highest end use for platinum (37-41%); followed by jewellery (31-38%).
We note persistent concerns over the impact an electrification of vehicles will have on platinum and palladium demand given sales of cars with a combustion engine (i.e. both ICEs and HEVs) may have peaked resulting in dramatic underperformance of Platinum vs both Gold and Copper over the last 10 years.
Source: US Dept. of energy, WPIC Research. Note: SMR is Steam Methane Reforming
Source: Bloomberg & Plenisfer Investments SGR 9/12/2020
We believe this doesn’t reflect the complexity of the process. Outside of vehicle numbers and size and powertrain trends, the technological change driven by emissions legislation is a key driver of demand in the auto industry. All else being equal, to achieve lower emissions from a vehicle a higher volume of Platinum content is needed.
Most overlooked by the market appears to be the potential impact of the hydrogen economy. Platinum is crucial for the electrolysis of water using renewable energy to produce ‘green’ hydrogen and technological changes are likely to increase this demand as it replaces iridium. A transition to green hydrogen could achieve material decarbonisation. Based on the current EU and China green hydrogen capacity targets alone would require, cumulatively over 1m oz of platinum by 2030 – about 18% of current mining supply.
Platinum is viewed as an undervalued gold proxy. As the Gold price has moved higher, investors have buying platinum to participate in the move in precious metals.
Over the longer term, the establishment of base demand from the hydrogen economy, coupled with a resurgence in jewellery demand, could lead to material appreciation of Platinum price. This forecast also considers existing supply constraints (80% of supply from South Africa) and long lead time to build new production (i.e. 8 -10years as per one company’s forecast).
Source: WPIC 2019
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