While South Africa produces 70-80% of the total global platinum supply, the average cost of production for their largest single producer, the Impala mine, is over $1,300 an ounce. The platinum price would have to rise nearly 30% just for platinum to trade at a level equal to the all-in cost of production at the largest mine in South Africa, the world’s largest producer. To us, this economic model is unsustainable, something must change - the price of mining cannot continue to be higher than the spot price. The shutting down of certain South African mines has already created up to a 20% supply deficit. With supply therefore potentially shrinking, even if the demand only stays the same, basic supply and demand laws state the price of platinum must increase.
Soaring Industrial Demand
Nearly half of all platinum consumed is by the automotive industry, specifically in the manufacture of catalytic converters. Here in the United States, the EPA has required most vehicles to have a catalytic converter since 1975. However, in other countries, similar policies are just being started. China has a population of nearly 1.5 billion people and has possibly the fastest-growing middle class in the world. However, pollution control standards in China are not nearly as strict as those we have here at home. As a result, China’s pollution, especially in big cities, has reached unsustainable levels, prompting the creation of stricter pollution laws. Throughout 2020-2021, China enacted a law regarding new emission standards that requires vehicles in China to be equipped with the latest catalytic converter technology.
The Chinese auto market is the largest in the world and has been exploding over the last 25 years. Although new car sales fell during 2020-21 due to the COVID-19 pandemic, in 2021, Chinese citizens bought more than 26 million new vehicles, all utilizing catalytic converters with platinum. In 2022, sales are expected to increase by 3.8%.
Our financial experts agree that this is a key reason for the increase in the price of platinum from 2020, as shown in the graph below. We believe that as Chinese automotive sales continue to grow, the demand for platinum will too, ultimately continuing to push platinum prices higher. In other parts of the world, alternative energies like hydrogen are starting to take off and platinum’s role in the hydrogen economy cannot be understated. Research from the WPIC found that platinum is often used in both hydrogen fuel cells and the production of “green hydrogen” via electrolysis. According to Forbes, in mid-2020, the European Union unveiled its new hydrogen strategy as part of its goal to achieve carbon neutrality and a zero-pollution economy by 2050. In the first phase, the EU will increase the installation of current clean energy electrolyzer capacity by more than 600% by 2024. Moreover, according to the Center for Climate and Energy Solutions, hydrogen has a strong case to be made the global green energy of the future. Future government-sponsored hydrogen economy initiatives are expected to only add to platinum investment demand momentum.
With this recent incredible increase in demand, and only more expected to come, even Forbes stated, “In a few years time we might hence expect it will look obvious that platinum was ‘too cheap.’”
