where to next for the metal?

Platinum prices rebounded in October after the sharp decline in late September as stricter emission standards for vehicles supported demand. 

The October platinum contract traded on the Chicago Mercantile Exchange (CME) plunged in early September as global vehicle production was constrained due to semiconductor shortages. Platinum prices fell from $1,021.60 an ounce on 3 September to a low of $899.20 on 20 September, a drop of 12%. Prices corrected upwards on the following day, climbing above $1,000 an ounce. Platinum prices last traded at $1,040.40 an ounce on 21 October.

Platinum started the year at above $1,050 an ounce and surged past $1,200, a six-year high, in February on the back of a recovering automotive sector. Prices have since eased from this peak as vehicle production constraint weighed on the market. 

If you’re interested in investing in platinum, in this article, we take a look at the market’s latest trends and developments as well as analysts’ price forecasts.

Rising supply and demand in 2021

Platinum is a key raw material in catalytic converters – they convert toxic gases and pollutants in exhaust fumes into less-toxic gases. As more countries implement stricter vehicle emission standards in order to meet environmental targets, this has increased demand for autocatalytic converters and in turn boosted the industrial consumption of platinum. 

In addition, the development of hydrogen fuel cell technology, which uses platinum as a catalyst, could increase demand for the precious metal in the longer-term. 

Hydrogen fuel cells produce emission-free electricity by combining hydrogen (the fuel) and oxygen (from air) over a catalyst such as platinum. 

According to the Q2 platinum report from industry body the World Platinum Investment Council (WPIC), global refined supply is expected to rise to 6.047 million ounces in 2021, up 21% from the previous year. The metal’s supply in 2021 is expected to rebound to near 2019 levels on the back of “the South African recovery following the extreme disruptions of 2020”. 

South Africa is the world’s largest platinum producer, and the country’s mining and refining operations were severely impacted during Covid-19 lockdown measures in 2020. 

Demand is also expected to rise this year. The automotive sector is the largest consumer of platinum, followed by other industrial end-users (chemical, petroleum, electrical, glass, medical and biomedical, and others). Similar to gold, platinum is also considered to be a safe-haven asset and is used in jewellery-making. 

Demand end-use shares, 2020 vs. 2021 (forecast)

The overall demand for platinum is expected to increase to 7.753 million ounces in 2021, up 1% from the previous year, according to the WPIC. 

The organisation said in its Q2 report:

“A bumper recovery in car sales and production drives autocatalyst demand, while a recovery in the luxury goods market sees a modest growth in jewellery. In addition, the ongoing economic recovery spurs healthy growth in all industrial sectors.”

In contrast, investment growth in platinum is expected to shrink this year to 110,000 ounces, down 78% from 2020. 

As a result of rising supply, the global platinum market is expected to be in 190,000 ounces surplus this year, compared with the 883,000 ounces deficit in 2020.  

Will growing automotive demand support the market?

Demand in the automotive sector is expected to grow this year as vehicle production recovers post Covid-19 lockdown. However, the semiconductor shortage in the first half of this year has hindered recovery in this sector. 

Several automakers announced they will be cutting production because of semiconductors shortage.

Japanese automaker Toyota (7203) announced on 10 September that it has cut its full-year global production forecast for the fiscal year ending 31 March 2022 to 9 million units, down 3.2% from the previous forecast. 

The world’s largest automobile manufacturer, Volkswagen (VOW3), also had to restrict production because of semiconductor supply shortage. VW Group’s CEO Herbert Diess said during the company’s annual press conference in March that the automaker was unable to build 100,000 cars due to the chip shortage and would not be able to make up for the shortfall this year. 

Nonetheless, “autocatalyst demand for platinum is still expected to rebound strongly this year, […] notwithstanding a further downward revision in vehicle production numbers, due to the ongoing semiconductor shortage,” said the WPIC. Demand for the automotive sector is forecast to increase by 22% year-on-year to 2,895 million ounces in 2021. 

The WPIC added:

“Had it not been for stoppages across the world as the semiconductor shortage persisted (and in many instances, worsened), demand for platinum would have been higher.”

Despite a worldwide rise in the number of battery electric vehicles sales, the WPIC said that 95% of the light-duty vehicle production will have a platinum group metal-bearing catalytic converter in its combustion engine. 

Platinum long-term forecast for 2021–2030: what’s next?

In its precious metal report published in June, Commerzbank said: 

“The positive outlook for demand from the automotive industry due to the higher use of platinum in catalytic converters and the increasing substitution of palladium should favour platinum. Platinum is also benefiting from the quest for environmentally friendly forms of mobility. In addition to its use in catalysts for internal combustion engines, platinum is also used in hydrogen technology (fuel cells). Although this does not play a major role at present, it is likely to become increasingly important over the next few years.”

Johnson Matthey, a major manufacturer of products containing the platinum group metals (PGM), also claimed that PGM demand is likely to rise with the world’s net zero emission target. Margery Ryan, principal analyst at Johnson Matthey, explained:

“Net-zero commitments made by the UK, the European Union, China and most recently the Biden administration in the USA, will require much greater use of hydrogen as an alternative to fossil fuels, and pgm will play an important role in the hydrogen economy.”

As a result, some analysts are bullish in their platinum price predictions, with projections of the precious metal potentially rising above $1,000 an ounce in the next five years.

Analyst average platinum price forecasts for 2021-2025; $ an ounce

At the time of writing (22 October), algorithm-based forecasting site Wallet Investor predicted the platinum price could end 2021 at $1,090 an ounce, 2022 at $1,185, 2023 at $1,280, 2024 at $1,389 and 2025 at $1,489.

The platinum price prediction from Gov Capital puts the commodity at $1,105 an ounce by the end of 2021, $1,591 an ounce at the end of 2022 and $3,407 an ounce at the end of 2025.

Long-term predictions from Coin Price Forecast are also bullish, albeit pointing to more modest gains. The website estimated that platinum could reach $1,050 an ounce by the end of 2021, $1,231 by the end of 2022, $1,749 at the end of 2025 and average $2,864 an ounce in December 2030.

When considering analyst commentary or predictions from algorithm-based forecasting services, it’s important to keep in mind that they can get their estimates wrong. You should always do your own research to form a view of the outlook for an asset and consider relevant market conditions.

How to start trading platinum with CFDs in 2021

One way to trade platinum, as well as a plethora of other commodities, is with contracts for difference (CFDs) on Capital.com. With CFDs, you don’t own the underlying commodity and instead speculate on the movements in its price.

Trading CFDs allows you to speculate on both positive and negative price fluctuations. If you expect the platinum price to rise, you can open a long position. If you think it will fall, you can short the commodity.

As a leveraged product, CFDs are designed to maximise gains. However, you should be aware of the high risk involved, as leverage will also magnify your losses, if the asset price moves against your position. 

Make sure you understand how CFDs work before you invest. Do your own research and always remember that your decision to trade should be based on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money. Never invest more than you can afford to lose.

Learn more about CFDs with our comprehensive guide. Follow Capital.com and stay on top of the latest platinum price news and outlook to spot potential trading opportunities.

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