Introduction to Platinum’s Price Surge
Platinum has experienced robust price activity in recent weeks, breaking out of a years-long range. Despite a persistent supply deficit, platinum has mostly traded between US$900 and US$1,100 per ounce in the past few years. But on Monday (June 9) it broke US$1,200, reaching its highest level since May 2021. What has changed for the precious metal?
Supply Challenges in Focus
Platinum’s lack of price momentum has come against a supply deficit that, according to the World Platinum Investment Council’s latest quarterly platinum report, will reach 966,000 ounces in 2025. This will be the third consecutive year of deficit, following a 922,000 ounce deficit in 2024 and an 896,000 ounce deficit in 2023. It’s fair to ask why prices haven’t moved sooner. According to the Sprott report, aboveground inventories have been filling the supply gap. But now these stockpiles are shrinking fast, and are expected to fall to just 2.5 million ounces by 2025, putting them on track to run dry within the next two to three years.
Decline in Primary Supply
Among the main contributing factors is a decline in primary supply. South Africa accounts for 80 percent of the world’s platinum output. This means that even minor alterations to the workforce, mining regulations or infrastructure can affect global platinum supply. Unfortunately, South Africa’s platinum market has been facing a series of challenges. One of the most significant issues has been a worsening energy crisis, which led state power company Eskom to initiate rolling blackouts across the country starting in 2020.
Energy Crisis and Mine Curtailments
The energy crisis further intensified, and in 2023 the country experienced 91 days of blackouts. In 2022, the platinum market was adequately supplied, with a surplus of 908,000 ounces, but power restrictions that resulted in curtailments at South African mines quickly shifted the market into deficit. Although Eskom managed to stabilize the power grid for much of 2024, new scheduled blackouts in January of this year highlighted the grid’s fragility after six units went offline, resulting in a loss of 3,600 megawatts of capacity.
Shortage of New Mine Supply
Moreover, there is a shortage of new mine supply coming online to help bridge the gap. Part of the issue is the rarity of the metal. For every 17 to 18 ounces of gold produced, only one ounce of platinum is extracted. Establishing new mines can take over a decade and can also be costly, leading to a lack of investment in the commodity. Impala Platinum Holdings CEO Nico Muller pointed this out to CBS News in August 2024, suggesting that new mines would be highly improbable as long as platinum prices remain depressed.
Auto Sector Supporting Demand
The automotive sector remains platinum’s primary demand driver, finding utilization in emission control systems, particularly catalytic converters for internal combustion engines. However, the same platinum loadouts are not necessary in electric and hybrid vehicles. According to the International Energy Agency, global sales of electric and hybrid vehicles have seen significant growth in recent years, rising from approximately 2 million in 2019 to over 17 million by 2024.
Shift in Demand
While electric vehicle (EV) sales are anticipated to continue growing worldwide, the growth rate has been slowing as more consumers opt for hybrids. The shift in demand is attributed to various factors, including range anxiety, costs and EV infrastructure. Moreover, policy changes in the US, such as the Trump administration’s rollback of environmental initiatives and proposal to eliminate EV tax credits, are likely to drive more consumers back to internal combustion engine vehicles. These moves are expected to drive automotive demand to an eight year high of 3.25 million ounces in 2025, further exacerbating an already undersupplied market.
Is Now a Good Time to Invest in Platinum?
There is still uncertainty about whether platinum’s price gains will hold, or if the precious metal will retreat back toward the US$1,000 mark, where it has remained for the last few years. However, with deficits expected to persist, the fundamentals are in place for a breakout in the platinum price. Notably, there are now more tailwinds for the industry as aboveground stockpiles edge closer to depletion, and rising costs mean producer margins are becoming tighter.
Conclusion
Overall, the market could be setting up for a sustainable price increase, but it also expects the market to remain volatile in 2025 as uncertainty surrounds US tariffs and trade policies. Investors should be aware of the fundamentals of the platinum market. While positive, due diligence should be taken to understand the risks of entering a potentially volatile market. With the right information and a solid understanding of the market, investors can make informed decisions about whether to invest in platinum.
