Rising expectations for rebounding economic growth, government infrastructure spending, and efforts to reduce carbon emissions around the world have driven rallying prices for industrial and precious metals so far in 2021.
The spot platinum price reached a six-year high above $1,300 an ounce in February this year, and continues to trade above the $1,200 level. Its 12.7% year-to-date gain, as of 13 May, has outperformed gold, which has shed 3.75% over the same period.
Are you considering investing in platinum? This article looks at the key drivers for the precious metal market and price forecasts from analysts.
Platinum market to remain in supply deficit
Platinum is used in catalysts in diesel vehicle engines to reduce carbon emissions. Demand is expected to climb in the coming years as governments globally are issuing stricter emissions limits in an effort to curb climate change.
The metal is primarily mined in South Africa and Russia, with some production in Zimbabwe, Canada and the US. Production was curtailed last year at the start of the COVID-19 pandemic, tightening supply ahead of a rise in demand from manufacturers.
The global manufacturing recovery strengthened at the beginning of the second quarter, according to Markit Economics. Monthly manufacturing purchasing managers’ index (PMI) data showed that output rose at the fastest pace in more than a decade, as inflows of new orders showed the strongest improvement in almost 11 years. The JPMorgan global manufacturing PMI rose to 55.8 in April, its highest level since April 2010. A number above 50 indicates an expansion in activity.
The automotive industry rebounded quickly from the COVID-19-led downturn in 2020, and the platinum market saw its largest supply deficit on record at 932,000 ounces, according to the World Platinum Investment Council. Although overall demand from the automotive, industrial and jewellery sectors combined fell by 569,000 ounces last year – a fall of 7% from 2019 – there was a 20% drop in mining production and a 10% decline in recycling that resulted in overall supply falling by 1.4 million ounces, or 17%.
The council forecasts that with widespread COVID-19 vaccination programmes allowing economies to return to normal, demand for platinum will increase by around 254,000 ounces, or 3%, to 7.99 million ounces in 2021, while supply will rise by around 17%, or 1.1 million, to 7.9 million. That will result in a deficit of around 60,000 ounces, putting the market in deficit for the third straight year.
In the jewellery market, same-store sales growth for platinum jewellery during the first quarter of 2021 jumped by 79.6% year on year in mainland China, the world’s largest market, and saw a 62.8% year-on-year increase in Hong Kong and Macau. With the platinum price trending higher, sales could rise further if consumers see jewellery as a good investment, noted analysts at Heraeus.
Looking ahead, there is also research into using platinum in lithium-air and lithium-sulphur batteries for electric vehicles to improve their performance.
Platinum price climbs to six-year high
The spot platinum price climbed above $1,300 an ounce on 15 February for the first time since September 2014 in response to the ongoing supply deficit and optimism about rising demand.
The platinum price rose by 13% in 2020 to end the year at $1,072.12 an ounce. It slipped back to $1,035.56 an ounce on 11 January, before rallying to the February high. The price retreated again but posted a higher low on 4 March, reaching $1,129.55 an ounce. The price has since been trending higher, and has maintained a range of $1,200-$1,255 an ounce so far in May.
Bullish spot market flows in platinum and palladium trading were the highest since July 2020 in early May, according to analysts at French bank Societe Generale.
So, what is the platinum price outlook for the rest of 2021 and into next year?
Analyst outlook: can platinum prices reach new highs?
Will the platinum market continue to rally this year given the expected supply deficit? Analysts at Dutch bank ABN AMRO are optimistic on the outlook for platinum prices, noting in a recent analysis that not only will demand for catalysts in diesel engines rise to reduce emissions, but the adoption of fuel cell vehicles will further lift demand.
Their platinum price prediction has the metal returning to $1,300 an ounce by the end of 2021, then trending higher throughout 2022 to reach $1,400 an ounce by December. Analysts at Australian bank ANZ are more cautious, expecting the price to rise back above $1,300 an ounce heading into 2022, but predict it will then slip back to $1,250 an ounce by the end of June 2022.
Analysts at Heraeus expect a further tightening of carbon emissions standards to increase platinum consumption in Europe. The European Commission is planning the next level of emissions standards for heavy-duty vehicles, with a proposal expected to be submitted in November 2021.
The analysts said: “This would require additional aftertreatment to comply, which means higher cost and most likely more [platinum group metal] PGM… The extra aftertreatment needed could include a second diesel oxidation catalyst or a passive NOx adsorber catalyst close-coupled to the engine, either of which would require additional platinum along with some palladium.”
However, in the short term there is potential for the platinum price to weaken before it takes off: “Further sideways-to-lower price action is possible, as seasonally the price tends to fall over the latter part of the year.”
Similarly, analysts at TD Securities said that “algorithmic trend followers are set to liquidate silver and platinum length as souring risk sentiment dents momentum signals”.
Platinum long-term forecast 2021-2030: how will the price trend play out?
Long-term platinum price predictions indicate there is scope for the platinum price to continue trending higher.
Algorithm-based forecasting site Wallet Investor predicts the platinum price will decline from $1,235 an ounce at the start of June to a maximum price of $1,215.83 an ounce by the end of 2021.
But the service expects the price to rebound in 2022, reaching $1,318.32 an ounce in September 2022, dip to $1,275.70 by December 2022 but climb to $1,406.84 an ounce in May 2023.
Further out, Wallet Investor predicts the metal’s price will reach a maximum price of $1,455.77 an ounce by December 2024, $1,535.46 an ounce by December 2025 and $1,643.64 by May 2026.
The platinum price forecast from Gov Capital puts the commodity at $1,250.63 an ounce at the end of 2021, $1,708.58 an ounce at the end of 2022, and $3,391.28 an ounce at the end of 2025.
Long-term predictions from the Coin Price Forecast are highly bullish. The website estimates the price will reach $1,407 an ounce by the end of 2021, $1,785 by the end of 2022, $2,782 at the end of 2025 and average $3,883 an ounce in December 2030.
Expectations of rising inflation in 2021 are likely to support investment interest in precious metals, including platinum, as a hedge. Platinum has outperformed gold so far in 2021 and forecasts suggest that trend could continue.
Investment banks like ABN AMRO and ANZ expect the platinum price to rise into 2022 on growing demand from the automotive industry and a continued supply deficit.
The most bullish forecasts suggest the platinum price could exceed $4,000 an ounce by the end of 2031. This will depend on whether there is a large-scale transition to fuel cell vehicles, as plans to phase out fossil fuels would reduce demand for catalysts for diesel car engines.
Whether you should invest in platinum or another precious or industrial metal depends on the composition of your investment portfolio and your risk tolerance. You should research the platinum market before investing and only trade with money you can afford to lose.
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