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Shiny metals are all the rage this year, with gold and silver on a tear. So it might be tempting to see platinum’s revival — the metal is up almost 80 per cent since January — as the result of spillover demand from investors seeking a hedge against currency debasement. But while platinum has in the past been viewed as a store of value, it is now best understood as a hedge against the slowing energy transition.
That’s because the automotive sector currently accounts for almost 40 per cent of platinum consumption. The metal is used in catalytic converters, which turn noxious exhaust fumes into less noxious substances. That huge source of demand was pencilled to decline to roughly zero over time, as fumeless electric vehicles took over from traditional internal combustion engines. Now, forecasters are busily revising their estimates up.
For one thing, the take-up of battery electric vehicles — those that have no traditional ICE engine or catalytic converter at all — has hit potholes in the US and Europe. Policy flip-flops are partly to blame. The expiry of federal consumer incentives in the US cut October BEV sales by almost a quarter year on year, according to preliminary figures. RBC analysts have reduced their estimates for US BEV penetration in 2030 from 35 per cent to 17 per cent.
Secondly, hybrid cars are selling more than expected, and may well sell for longer than expected. The category, which includes both plug-in hybrids and cars which charge batteries internally, sports both electric drivetrains and combustion engines with catalytic converters. In China, hybrids will account for almost 40 per cent of total “new energy” car sales this year, according to Citigroup analysis. Demand beyond the main coastal cities is particularly strong given longer driving distances.
In Europe, too, hybrids are doing a roaring trade, accounting for some 45 per cent of new car registrations between January and September and knocking both fully electric vehicles and petrol cars into a cocked hat. Chinese carmakers such as BYD are winning over consumers with cheap and longer-range vehicles. While upcoming legislation in Europe still strongly favours battery electric vehicles, there is clearly a lot of demand for cars that are both ‘greener’ and don’t require consumers to modify their habits in any way.
The upshot is that the platinum market may well find its current deficit — of over 10 per cent of consumption last year — continuing. Better still, rising prices are unlikely to result in lots of new supply coming on stream. Platinum miners such as Valterra, Impala and Sibanye-Stillwater may be riding high, with prices for the platinum metals group — which also includes palladium and rhodium — about 10 per cent above the marginal cost of production according to RBC. But, while lengthened, the demand runway is still too short for mining’s long-term investments. Platinum’s value is set to motor ahead.