Platinum, rare and valued

Platinum is valued as one of the rarest of precious metals. It is best known for being the premier choice for the finest jewellery. It is also demanded by investors in the form of coins and bars. However, few know that it also solves industrial challenges through its remarkable physical and catalytic properties.

Platinum’s largest single use is in automotive exhaust systems with a unique contribution to controlling noxious vehicle emissions. This essential application, plus the growth potential of its many other industrial uses and its premium position in jewellery, when combined with its concentrated supply in southern Africa, make platinum an investment asset worthy of strong consideration.

Platinum’s long history goes back to the ancient Egyptians and the Incas in South America, who first used platinum alongside gold. Platinum’s far higher melting point than gold and silver meant that platinum jewellery remained rare until high-temperature jewellers’ torches were developed around 1900. Platinum quickly became the diamond setting of choice, as it is today.

It wasn’t until the growth in popularity of platinum jewellery and the development of new industrial applications in the 1960s that platinum secured its unique role in society. The introduction of automotive emissions standards in the 1970s increased demand for auto catalysts using platinum to convert toxic gases in vehicle exhausts into harmless gases. The successful application of platinum’s catalytic properties in drastically cutting noxious emissions in both petrol- and diesel-powered vehicles established the automotive industry as platinum’s primary demand segment.

Platinum’s investment heritage is rich and diverse. Global platinum coin production has been small compared to gold, however many investors have already benefited from platinum’s significant value appreciation. It is significant that if investors in gold had included even 5% of platinum in their precious metals portfolio, their risk adjusted returns would have been higher over the past 30 years. Many such investors in the US hold gold coins, only, in their pension schemes. The Japanese have long appreciated the value of platinum, possibly due to the growth of platinum jewellery in Japan in the 1960s, which led to Japan becoming the largest market for investment in retail platinum bars.

Platinum is also used in a variety of other applications ranging from biomedical devices, such as heart pacemakers, instruments for keyhole surgery and anti-cancer drugs. It is also used in the manufacturing of glass fibre, liquid crystal display glass, and jet engine blades.

Over the past 10 years, platinum’s demand has grown 11% while its total supply has fallen by 2%, with growth in supply from recycled autocatalysts and jewellery unable to meet the 12% fall in mining supply. Surprisingly, price performance over the same period has been poor, partly due to platinum’s narrow investor base, which prior to 2007 did not even include Exchange Traded Funds (ETF’s).

In the medium-term, ongoing demand for diesel cars in Western Europe will ensure there will be a major element of platinum demand from autocatalysts. Additionally, as emissions limits in emerging markets catch up with the stringent standards in North America and Europe, platinum will form part of their emissions solutions and drive demand growth. Looking forward, automotive and industrial demand will be driven by new technologies such as fuel cells, which will be key to meeting future global CO2 requirements. The platinum fuel cell in particular is uniquely capable of matching modern vehicle performance demands, including ease of refuelling and extended range.

Jewellery demand is also set to increase on the back of rising urbanisation and disposable incomes in emerging markets, particularly in China and India.

Overall, global demand for this precious metal, with its unparalleled – and growing – range of applications, continues to increase. The current platinum market – characterised by this growth in demand, constrained supply and with the platinum price currently well below recent averages and at a steep discount to gold - suggests more investors are now likely to seriously consider this unique metal, whether in the form of bars, coins or other investment products.

The World Platinum Investment Council (WPIC) is a market development organisation created by the six leading platinum producers in 2014 to develop the global market for platinum investment demand. WPIC’s mission is to stimulate investor demand for physical platinum through actionable insights and targeted development. The WPIC is not authorised to provide investment advice.