How EVS will shape platinum demand
Prices of this rare precious metal lagged gold as a result of an industrial slowdown but battery adoption may boost it
Apart from being the material of choice in the most expensive jewellery and the most collectible watches, the rarest of all precious metals, platinum, is an important ingredient in industries that range from automotive and pharmaceutical to medical devices and glass. The world’s platinum reserves are also limited — they are 30 times less than gold reserves.
That would imply that platinum prices should be higher than gold. For example, platinum was priced at around $610 per ounce (28 grams) in 2001 when gold was selling for $270 per ounce.
Yet, over the years, the trend has been reversed. According to industry source Kitco, exchange prices for gold are at $1,800 per ounce and approximately $1,000 for an ounce of platinum as of early September. Before Covid-19, gold was priced at around $1,500 an ounce and platinum $1,070 an ounce.
This inversion is a reflection of the state of the global economy and consumer sentiment. Gold, often used as a hedge to inflation, has surged in the last two years, while platinum has in relative terms seen a more modest appreciation.
“It’s important to note that platinum is not a commodity but has seen demand reduce because of economic uncertainties and the nature of usage of platinum in industry,” said Vaishali Banerjee, managing director at the Platinum Guild India (PGI), a marketing organisation for platinum producers.
One of the big influencers of platinum demand is the auto sector, where it is used extensively for catalytic convertors in petrol and diesel vehicles, since it is resistant to disintegration (catalytic convertors convert up to 90 per cent of harmful gases from auto exhausts into less harmful substances). But two developments could impact demand. The first is the use of palladium as an alternative metal. India’s Bharat VI emission regulations have lifted the loading of palladium by 10 per cent in gasoline cars (vehicles use a combination of palladium and rhodium as catalytic metals but many, especially diesel, vehicles also use more platinum). The second is the growth of electric vehicles (EVS), which do not require catalytic converters.
“At present in most countries, it is internal combustionengine vehicles that are seeing increasing production, so the demand for platinum is increasing — three to seven gm of platinum is used in one catalytic converter by way of plating the catalyst,” said Harshbeena Zaveri, managing director of auto component maker NRB Bearings.
It is true that platinum does have usage in EV batteries as shown by early offerings from Toyota. But as Zaveri pointed out, “In EVS, so far platinum is not being used widely but some battery firms are doing research on the possible use of both platinum and palladium in lithium-based batteries — Tesla being one example.” He added, “There is but no clarity on the advantages of platinum other than that it’s currently cheaper than palladium.”
Platinum is around half the price of palladium at current spot prices. At the current palladium premium to platinum, and with a 1:1 substitution ratio between the two metals, there is a very strong economic argument for auto producers to substitute more platinum on future models.
Suraj Ghosh, associate director, powertrain & compliance forecasts, South Asia, for IHS Markit, confirmed that “the demand for palladium and platinum, driven by automotive applications, saw phenomenal growth as the world auto markets switched to stricter emissions standards”.
Ghosh went on to add that with the advancement of EVS as a mainstream mobility option, the growth trajectory of these metals has a risk of abrupt decline. “So, by the end of this decade, the prices could fall proportionately. More so as many markets are announcing phase-out plans for internal combustion-engine vehicles,” he said.
Of course, that trend could be upended if platinum finds increasing usage in high-tech industrial applications. If it doesn’t, then it has the side effect of becoming more affordable in comparison to gold in relative terms.
Which is to say that, despite gold’s enduring allure and the propensity of Indians to buy the metal as investment, the demand for platinum isn’t waning, especially for jewellery.
Rajiv Popley, a long-time jeweller in Mumbai and director of Popley Group, the first retailer for platinum, said the hardness of platinum is better suited for diamond jewellery. Tarun Kanwar, director of Navrattan Jewellers, added that over the past two decades, there has been a consistent rise in consumer demand for platinum jewellery. “The young and upwardly mobile connect well to this unique white metal and a price correction in platinum relative to the price of gold has also made the metal an affordable alternative.”
PGI, which has 1,500 “doors” or retail points of sale under the guild with around 450 retailers, said that until 2019, they saw an average of 18 per cent year-on-year growth for their strategic partners. “Last year despite the pandemic taking on several businesses, we managed to do tremendously well in quarter four (October-december 2020) with a V-shaped recovery and 29 per cent growth,” Banerjee said. “Our appeal has spread beyond metros today. Geographies such as Baroda and Cochin feature in our top 10 markets and almost 60 per cent of the traffic to our websites is from beyond the key metros.”
“Due to its non-corrosive nature, platinum jewellery stands the test of time as it remains unchanging in its pure white colour, form and shape over time,” Banerjee added. “That makes platinum truly eternal.”
Where the prices are destined to head for platinum is anyone’s guess, but market watchers and industry pundits are aligned that it’s likely the metal will see an upward trend from here on.
At the current palladium premium to platinum, and with a 1:1 substitution ratio between the two metals, there is a very strong economic argument for auto producers to substitute more platinum on future models