Platinum price was 'suppressed' in 2020 by futures markets - World Platinum Investment Council
The platinum market has been in a deficit, and this is expected to continue into 2021, said Trevor Raymond, director of research at the World Platinum Investment Council.
However, the price has been suppressed by positions on the futures exchange in 2020, Raymond said.
The short-term price of platinum is highly correlated to the futures market, but earlier this year, the differential between the futures price and the spot price soared.
“What we saw a blowout with the difference between the futures price and the spot price was over $75 an ounce, so anybody that was on the short side of a future, rather than incur that $75, what they actually did, when the lease rate spiked, they leased a bar, melted it down, and turned it into a 50 ounce bar in Switzerland, and they moved those bars to NYMEX warehouses,” Raymond said. “The bad news was that the positioning on the futures exchange dropped significantly and because of that we think it suppressed the price.”
The spreads have since come down, even below normal levels and people are going net long for the first time in a couple of months, Raymond said.
“Certainly, that, we believe is what will drive the price right now in addition to the fact that you’re getting the optimism in industrial use with the vaccination. So I think the price has been muted and suppressed, but certainly there’s indications in the last 15 days that platinum is ripe to continue moving,” he said.
Despite a deficit, a few main reasons held back the platinum price from growing in 2020: expectations for fewer vehicle sales, and a rise in demand for competing precious metals, such as gold and silver.
“What we published in November was that the deficit in the platinum market will be just over 1.2 million ounces and that’s nearly four times bigger just two months ago,” Raymond said.
Recently, however, the same forces that held back platinum have been driving it up.
“What we’ve seen recently is with the optimism of a vaccine reducing risk, you had the gold price weaken and the platinum price strengthen and that kind of makes sense, as things gets better, platinum’s industrial performance will increase,” Raymond said.
As of December 4, platinum is up 11% year-to-date.
Mine shutdowns this year as a result of COVID-19 were the primary cause of a supply crunch for platinum.
Unrelated to COVID, a South African processing facility experienced an outage failure in April and May, and November, and will be offline in December as well, removing 900,000 ounces of refined platinum supply.
On the demand side, there are four main drivers: automotive catalysts, jewelry, industrial uses, and investment demand.
“This year, we’ve seen the industrial, jewelry, and automotive [drivers] down on reduced activity and vehicle sales, but on the other side, we’ve certainly seen the demand growth potential and that is CO2 has become a big issue - the hydrogen economy – COVID has focused people on sustainable climate change activity, and what we have is some strong demand growth potential for platinum in the substitution of platinum for palladium in catalysts, and certainly more diesel vehicles on the road,” he said.
The increase in investment demand is likely to persist in 2021, Raymond said.