The hydrogen economy is elevating platinum as a precious metal with long-term store of value, says the World Platinum Investment Council.
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An evolving global sea-change in the environment debate may be at play in changing investor sentiment towards platinum, significantly bolstering platinum’s green and precious metal credentials. Since the platinum price lows of 19 March 2020, platinum has significantly outperformed gold.
With the economic impact of COVID-19 depleting climate change funding, there has been growing impetus from China, Japan, South Korea the EU and the USA to prioritise the ‘hydrogen economy’ in cost-effectively driving forward the green agenda.
On 8 July 2020, the EU implemented its hydrogen strategy, highlighting the crucial role hydrogen will play in decarbonising industry, transport, power generation and buildings across Europe.
As increasing numbers of national governments recognise that the use of hydrogen as a fuel for primary power and transportation is one of the most cost-effective and sustainable routes to a better climate future, platinum’s key catalytic role to help facilitate the hydrogen economy is becoming known.
Not only is platinum key to the generation of green hydrogen, but it is also used in fuel cells for fuel cell electric vehicles (FCEVs). As the hydrogen economy and the FCEV market grow, it will create significant demand for platinum.
Unpacking Q2 supply and demand
The latest edition of the WPIC’s Platinum Quarterly reports a revised 2020 forecast that has moved the platinum market into an annual deficit of -336 000 oz compared to the prior estimate of a +247 000 oz surplus.
Read more: WPIC Platinum Quarterly Q1, 2020
Investment demand for platinum strengthened in Q2, 2020 amid the COVID-19 pandemic, which negatively impacted the world economy on an unparalleled scale.
According to WPIC, the combination of increased global risk and monetary and fiscal policy responses to the crisis boosted the appeal of precious metals, including platinum, during the quarter.
Total platinum supply in 2020 is now forecast to fall by 14% to 7 102 koz and reflects a 15% decline in refined production and a 12% decline in recycling supply.
Total platinum demand in 2020 is forecast to be 7 438 koz, 11% lower than in 2019 due to lower demand from all four demand segments: automotive (-464 000 oz), jewellery (-287 000 oz), industrial (-5 000 oz) and investment (-192 000 oz).
Investment demand is forecast to be 1 060 koz, 15% lower than in 2019 but 455 000 oz higher than previously forecast for the year. Indeed, heightened global risk is expected to continue to drive investor demand for hard assets, with bar and coin demand forecast to grow by 113% to 600 000 oz.
Heightened investor interest, which bodes well for the outlook for platinum, comes at a time when the latest WPIC Platinum Quarterly reveals details of the global impact on the platinum market during the peak of the COVID-19 crisis, a quarter that represented an unprecedented moment in history.
Supply in the second quarter of 2020 fell by 35% year-on-year (-748 000 oz) to 1 408 koz. The second quarter bore the full supply impacts of a major smelting process outage and COVID-19 driven mining lockdowns in South Africa. Indeed, South African mines were completely locked down from 26 March to 30 April, and only widely reopened after 1 June. Platinum recycling in Q2, 2020 was also severely impacted by COVID-19 related logistics disruptions, with volumes down 19% (-100 000oz).
Demand in Q2, 2020 fell by only 19% year-on-year (-387 000 oz) to 1 599 koz, and was also only 2% (-36 000 oz) down on first quarter levels. Platinum automotive demand in Q2, 2020 fell by 48% (-360 000 oz) as COVID-19 related shutdowns limited vehicle production from early in the quarter in all major markets bar China.
Pandemic-related factory closures, retail restrictions and consumer caution reduced jewellery demand by 27%, while all industrial demand segments except glass contracted.
However, heightened global risk coupled with government monetary and fiscal policies to limit the global economic impact of the pandemic, increased demand for precious metals including platinum with platinum ETF net inflows of 122 000 oz in Q2 in sharp contrast to net outflows of -213 000 oz during the first quarter. Robust bar and coin demand continued in the second quarter, with 133 000 oz added to investor holdings. Additionally, strong inflows of platinum metal into NYMEX depositories, initially prompted by COVID-19 related logistics constraints, saw Q2 demand from the change in stocks held by exchanges of 138 000 oz.
“Platinum market demand and supply have both been significantly reduced year-on-year by the impact of the pandemic. However, due in part to some supply issues unrelated to the pandemic, plus the nature of physical investment demand, the potential effects of the pandemic on platinum’s market balance are far less negative than previously expected,” says Paul Wilson, CEO of the World Platinum Investment Council.
“Changes in supply and demand will depend on the timing of, and extent to which, lockdown measures are wound back, the likelihood and implication of second waves of infections, progress towards effective vaccines, and lastly, the longer-term implications of governments economic policy responses to the pandemic.
“Since the platinum and gold price lows of 19th March 2020, at $599/oz and $1 474/
oz respectively, platinum has significantly outperformed gold, rising 55% versus gold’s rise of 33% by the end of August. At times of crisis this is no anomaly.
“In the two years subsequent to the price lows of the Global Financial Crisis in late 2008, platinum’s weekly returns outperformed those of gold by between 30 and 65 per cent. With investment demand and platinum’s fundamental outlook up in 2020, this significantly enhances the outlook for for the precious metal,” he concludes.