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Platinum futures: expect industrial demand to boost prices again

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Platinum prices have dropped sharply this year, particularly in the last few months, but it is too early to write off this precious metal because of continued demand from the car industry and investment demand.

The recent oversupply has caused prices to drop from a February peak of $1,288 an ounce to close to $985/oz last week and for the moment, this surplus is likely to remain in place. The World Platinum Investment Council says that although they expect strong demand for the metal over the next 12 months unwinding of stocks and reduced investment will keep the platinum market in surplus during 2022.

Platinum mine output has been consistent

Mine output for the metal has remained more or less the same over the last two years but supplies of the semi-finished metal accumulated during the lockdowns in 2020 will continue to come into the market and act as an additional supply stream.

On the positive side for investors, demand for the metal from car producers has risen an estimated 14% this year compared with 2020 and is expected to increase a further 20% in 2022. Tighter emission legislation and substitution for palladium will work in favour of the white metal. Demand for platinum bars and coins is also expected to rise in 2022, by as much as 10%.

Covid and South African production

The spread of the Omicron Covid variant has the potential to affect the production of the metal, particularly if it starts getting a grip on southern parts of Africa, although this would only be the case if the spread of the virus became much worse.

South Africa is the world’s largest producer of platinum, accounting for around 80% of the global output, with Russia and Zimbabwe being number two and three in the world. In 2020 production in South Africa was significantly impacted, particularly during a period of strict lockdown in the second quarter. Since then, South Africa has said that halting mining because of Covid would be a move of last resort given the economic importance of mining for the country.

Omicron is currently spreading fast in South Africa and reinfecting people who have already had Covid but for the moment it doesn’t seem to affect mining operations.

Platinum prices still look undervalued

Taking the longer view, platinum prices look undervalued compared with where they were between 2010-2015, when they traded in the range between $1,200/oz and 1,900/oz. Demand from electric vehicle manufacturing will only increase over the next decade, not only in Europe and the US but also in China which is on a major drive to expand is EV production.

Another contributing factor expected to boost the whole precious metals complex is US inflation. In November gold prices surged to a five-month high because of its appeal as an inflation hedge.

“With US inflation hitting its highest level since 1990 and the Federal Reserve not yet talking about raising interest rates, gold finally appears to be finding support from inflation it has been searching for several months. Strength in gold seems to be lifting the entire precious metals basket despite industrial challenges facing platinum and palladium,” says a research note from ETF specialist WisdomTree.

Platinum ETFs

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Physical Platinum
Hargreaves Lansdown | Interactive Investor | Charles Stanley Direct | EQi
JE00B1VS2W53 PHPT USD
WisdomTree Platinum 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00B2NFV134 LPLA USD

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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