Platinum Prices Down But it has its supporters Longer Term

Video transcript:

Today is Monday 23rd November 2015 and we are providing an update on Platinum and mentioning two of its major supporters.

Mining entrepreneur Robert Friedland is bullish on Platinum Group metals long term, despite platinum prices having been under pressure this year, and the recent Volkswagen emissions scandal exacerbating matters further. Now, we have to bear in mind that Mr Friedland has vested interests being the Executive Chairman and Director of Ivanhoe Mines, nevertheless his experience and reputation in the industry is well known.

The two main reasons for his bullishness are:

1. Urbanization and air pollution

As more and more people migrate to cities, air pollution will increase substantially an example being air pollution hitting life-threatening levels in Paris in March 2014.
That’s important for platinum as “platinum-group metals are absolutely critical to having cleaner air” due to their role in catalytic converters for vehicles and in other emissions-reducing applications.
Platinum and its sister metal palladium are widely used in catalytic converters that reduce harmful emissions from automobiles. Platinum is used in converters for diesel engines, while palladium is used for engines that run on gasoline.

Although diesel car sales have been on a downward trend, as a result of recent revelations that Volkswagen has been cheating on its emissions tests, Friedland counters this by noting that China is imposing standards to remove sulphur from diesel and gasoline, and removing that excess sulphur could allow the “90 million cars clogging the roads in China” to be retrofitted with catalytic converters.

2. Hydrogen fuel cells

Friedland also sees vehicles which run on hydrogen fuel cells becoming additional scope for Platinum demand-believing that ‘fuel cell technology is the way of the future’. With fuel cells requiring 8 – 12 times as much platinum as is required in catalytic converters he sees the longer term demand for this PGM to rise significantly.
In addition, fuel cell technology is becoming more and more important in Japan, where fuel cells are also being built for home use.

Another fan of Platinum is Johnson Matthey Plc which sees platinum usage growing, and recycling rising. It predicts that Platinum demand will probably beat supply for a fifth year in 2016 on more industrial usage, even as recycling rebounds. It states in a recent Report “Automakers will buy more platinum to use in devices that curb harmful emissions from vehicles, though the growth rate will be slower than in the last two years”. It further added that “while slumping platinum and steel prices have reduced the incentive to scrap older cars this year, there may be a “double-digit” increase in the amount of metal recycled from vehicles in 2016. It says “There is little prospect of material growth in primary platinum supplies in 2016.”

The recent PGM sell-off is mainly being blamed on investors liquidating their holdings in physically backed exchange traded funds. The launch of two popular physically-backed palladium ETFs in Johannesburg in March last year gave an additional boost to palladium and platinum already boosted by the crippling strike in South Africa. Now it appears South African investors have lost confidence since August of this year.

Ole Hansen, head of commodity strategy at Saxo Bank points out that both platinum and palladium are small markets and such a massive exodus within a short space of time can exaggerate price declines of the underlying metal.

So what does this all mean? Well frankly its suggesting that short term, PGMs are likely to go in the same direction as other metals namely lower. However longer term, there is a strong fundamental case for Platinum. When we first reported on it on 26th July the price stood at $987 oz and today its standing at $846 a far cry from its 2015 peak of $1283 back in January.

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Silver Illuminati owners come from a background of Banking, International Wealth Management and Economics. Having now retired from these worlds we are not qualified to give investment advice. Therefore, this and other productions must not be deemed to be giving such advice and merely represent the personal views of its owners.