While gold and silver remain the favorites of investors, the most popular white metal – platinum – is gaining increased traction of late. In fact, platinum has outperformed its two cousins – gold and silver – so far this year. The price of platinum has fallen 8.4% in the year-to-date time frame compared to losses of 24% for gold and 33% for silver.
Platinum is one of the rarest precious metals on the earth and is often overlooked by investors. It could be considered an extremely lucrative investment avenue given demand/supply dynamics that would lead to higher prices for platinum heading toward the next year.
A precious metal refiner, Johnson Matthey, predicts that the platinum market would be in the biggest supply deficit in 14 years. The demand for platinum is expected to increase 4.9% year over year to a record, buoyed by strong industrial and South African issues. Plus, supplies look to fall short of demand by 605,000 ounces, far worse than the previous period which showed a shortfall of 340,000 ounces.
Supply Falling Gradually
About 80% of the total supply comes from South Africa, which is struggling with labor problems and mine closures resulting in frequent supply disruptions.
Currently, Northam Platinum, the world’s fifth largest platinum producer, is in its third week of strikes due to disputes over wage negotiations. The other top three producers – Anglo American Platinum, Impala Platinum and Lonmin – might also have to suspend operations as mineworkers are demanding higher pay and managers are looking to keep a lid on rising costs.
Supplies from Russia, the second largest supplier, have also been declining.
Demand Growing Rapidly
The automotive industry, mainly via catalytic converters for vehicles, is a big driver of demand in the platinum market, accounting for nearly 40% of the total. A solid rebound in the auto industry, new vehicle emissions standards in Europe and continued growth in Chinese auto sales may continue to boost demand for metal (read: These 3 ETFs Could Soar on Strong Car Sales).
About 35% of the total metal demand comes from jewelry whereas demand from industrial applications accounts for 20%. China, Europe, North America and India are seeing robust demand too.
In addition, the construction of new facilities in Asia and the Middle East chemical sector and the manufacture of glass and computer hard disks would propel the purchase of platinum catalysts going forward.
The rest of the demand is driven by investments, which are expected to grow 68% this year thanks to South Africa’s new platinum-backed exchange-traded product.