Investment idea: Platinum

Platinum is mainly used for jewellery and the automotive industry. Approximately 70% of all the platinum in the world is produced in South-Africa.

Stock listed companies that own South-African platinum mines are among others Impala Platinum and Lonmin. These companies have recently become under pressure by the social unrest in South-Africa. The people who live nearby the mines want more jobs and higher wages. They claim that mining companies do too little to provide the region with an economic boost.

The social unrest in the South-African mine industry is nothing new, but this time it happens at a moment where the platinum price is pressurized. On an annual basis the platinum price is more than 17% lower at USD 906 per troy ounce. Compared to the peak in 2008 the platinum price is almost 60% lower.

Developments automotive industry

The price decline of platinum over the recent year is remarkable, because the supply of platinum has been relatively constant and there was a continuity of deficiency. The World Platinum Investment Council also expects that the supply will drop further during the coming years. During May the council expressed the expectation that the worldwide refined platinum stock will drop in 2017 with 1% to 5.96 million ounces. However the future development remains to be seen.

Despite this stock drop the shortage on the worldwide platinum market will decline from 360,000 ounces in 2016 to 65,000 ounces in 2017 (source: World Platinum Investment Council). This decline is entirely due to a decreasing demand. The automotive industry is the world's largest platinum buyer which is mainly used to reduce vehicle emissions.

During the past year, car catalysts accounted for 40% of the demand for platinum. However the World Platinum Investment Council expects that the demand from the automotive industry in 2017 will drop from 3.435 million ounces to 3.4 million ounces.

Analysts from UBS claim that the demand for platinum from the automotive industry will be 10% lower in 2021 compared to 2016. The Swiss investment bank claims that this could result in a platinum surplus which could lead to a price drop.

The demand decline of platinum is, according to UBS, a result of the upswing in electrical cars, where other rare materials are being used for. UBS for example points out that Chevrolet doesn’t use platinum at all for the production of the Volt.

Depending of the gold price

At the same time UBS claims that approximately 60% of the platinum price fluctuation is caused by the gold price. Therefore platinum can still be an interesting investment when the gold price would rise, according to the Swiss investment bank.

This is confirmed by gold experts. For now the gold price remains under pressure by the expectations that the Federal Reserve will increase their interest rate. At the same time analysts from ETF Securities point out that the increasing inflation of the United States could provide a boost for the gold price.

Therefore analysts believe that the gold price could recover during the coming period, which would have a positive effect on the platinum price. It remains to be seen how the markets will develop during the coming period.