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Is there a future for platinum?

Amplats’s quest to find new PGM applications resurrects debate.

Anglo American Platinum’s decision to inject over R1.3 billion into two venture capital funds to support the development of innovative uses for Platinum Group Metals (PGMs) has resurrected the debate about the future of these precious metals.

South African platinum miners have experienced a tough time over the past few years amid falling prices and sentiment in the market for PGMs has turned even more negative as fears of a trade war have escalated.

Speaking at the Allan Gray Investment Summit, Karl Leinberger, chief investment officer of Coronation, said most investors feared or loathed an investment in platinum miners – for good reason.

“They have been desperately terrible investments for the last ten years.”

Yet, he still sees opportunities in the market. One example is Northam Platinum.

This was despite the fact that platinum bears argue that the bulk of PGMs are used in catalytic converters in automotive manufacturing, and that most people will be driving battery-powered electric vehicles in 30 years.

Leinberger said while he was positive about the future of electric vehicles, Coronation had done an enormous amount of work on automotive manufacturers (OEMs) and the detail around the vehicle drive chain to understand what disruption would mean for PGM markets.

“The big surprise coming out [of the analysis] is that even if you go out ten, fifteen years, you get big, meaningful deficits in PGM markets, which is just absolutely not reflected in the price.”

Leinberger cautioned against broad brush strokes. Five years ago, investors were arguing that coal was a sunset industry and that the world would move away from it completely, but the coal price has gone up significantly from its earlier lows.

“I think that the emotion and short-termism can sometimes present big opportunities. We think Northam is a great company. It is well positioned within the PGM industry.”

Although Johny Lambridis, portfolio manager at Prudential, did not share Leinberger’s optimism, his bearish view on platinum was not related to developments around electric vehicles, but about recycling in the industry.

Europe is a big user of the metal for its vehicles, but in 2017 new vehicle sales on the continent were comparable to 1998, Lambridis said.

“You effectively have had no growth in new vehicle sales and effectively therefore the car park is not growing.”

Initially the local platinum industry benefited from the fact that there were increased loadings in these catalytic converters, but that has stabilised. Diesel penetration in the car park also rose, but since the VW emissions scandal it has also started to plateau, he added.

“We don’t have growth in [the] number of vehicles and effectively all you are doing – you are taking one catalytic converter, you are recycling it (getting the platinum out). Do you actually need South African platinum? So that is our concern.”

Where an industry was in decline, one would usually see steps to reduce capacity, he added.

One example is British American Tobacco that – in response to the decline in tobacco smoking – has been closing factories and reducing staff numbers to improve its margins.

“In South Africa, the government will not let you cut shafts. That is our sort of bearish case for platinum.”

Lambridis said their bearish view might change if other uses for platinum were developed.

“But if we are relying solely on catalytic converters, we don’t see the investment case.”

Andrew Lapping, chief investment officer at Allan Gray, said forecasting commodity prices was exceptionally difficult to do, as there were many factors to consider.

“These complex forecasts, people are not good at them.”

What was not known however, was whether sentiment towards the industry was positive or negative.

Lapping said at the moment, sentiment towards PGMs is “beyond horrendous”. Investors are selling ETFs and prices are low. Back in 2007 when prices were much higher, investors loved platinum.

“There was this huge bull argument and people were buying platinum at over $2 000 an ounce. Now at $850, people don’t like it. That is something you do know.”

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Platinum is at the mercy of a few things.

Its lacking a clever PR machine and should be using VW dieselgate to leverage more use of platinum in autocats to reduce emissions further and blame the insufficient use and recycling in autocats for the emissions scandal.

Besides the fact the local government lacking the astute competence to let market forces restrict supply, there is also the delusion of EVs killing future demand.
30 years is a short space of time for most to change to EVs and although there is a lot of hype around it with epic showman Musk, realisticly the electric energy shortfall and battery resource constraints will put pay to mass scale roll out.

It would seem that the negativity towards the shiny dense metal is completely unwarranted and at just over $800 oz the savvy investor would be quietly piling in.

Agree. Also platinum is often used in other industrial catalysts. In my opinion something that won’t quickly lose demand.

I couldnt agree more, where is the Pt Kruger Rand coin?

Or the Pt Mandela coin, as that is likely to be more acceptable to our communist friends. Just pure retardation that it hasnt been pushed as an investment precious metal.

Would also like to see Platinum Kruger Coins.

I somewhat disagree.

30 years at the rate we are going now is MORE than enough for EV’s to kill ICE.

Solid state batteries which will increase charge cycles to 25K+ cycles and improve energy densities by a factor of 2-3 times are just around the corner, in fact, VW are planning to release a golf in 2025 using the new solid state batteries rather than lithium the e-golf currently uses.

My guesstimate is that by 2040 (22 years from now) ICE represent less than 30% of passenger car sales, just a feeling I have, I could be wrong?

It’s wonderful to get caught up in futuristic hype- it’s it fun? Why wait until 2025 ?

I don’t agree. About 50% of the demand for platinum comes from the automotor sector where it is used as a catalyst. With the move away from combustion engines (Volvo from 2019, Jaquar from 2020, etc) the demand for Pt will decrease even more…hence prices will go down further.
If the platinum industry is looking for an alternative use for Pt it will take years before a use is found AND a sizeable uptake by consumers occur to increase the demand for Pt for that alternative use.
So for the short and medium term Pt and their respective mining houses will go down as demand falls further.

@AngeloJoe “It’s wonderful to get caught up in futuristic hype- it’s it fun? Why wait until 2025 ?”

The EV revolution does have a lot of hype around it, but, it is VERY much warranted, in-fact, I think anyone buying a ICE car between now and 2025 will just be buying a future headache, by 2040 when your new 2020 Range Rover is 20 years old, getting parts for ICE motors are going to start getting interesting, if I could afford a i3 I would already have had one, but just sit tight, they will be cheaper to buy than ICE, cheaper to maintain, and in orders of magnitude cheaper to run in terms of Kwh/KM vs L/KM, in 22 years time we will look at the internal combustion engine like we look at horse drawn carriages today.

Platinum’s value has historically been it’s rarity and unique industrial application. Both are under threat due to recycling and the move away from diesel. It says something when a major producer starts looking for alternative uses and the investment is close to 10% of 2017 EBITDA.
Production needs to decrease, but at the moment all the producers are trying to do the opposite to bring their unit costs down. This cannot continue.
Coins and bars speak more to a “reserve of value”. Whether platinum can be considered an investment similar to gold, I am not sure.

The greatest threat to the ICE is not technology but legislation. Without government interference the internal combustion engine would be around for a very long time but statism coupled with the ubiquitous insouciant loony left green fringe will kill it.

The main issue with platinum is that it is in over supply. When the price was >$2000/oz a lot of foreign explorers got a slice of the Bushveld Complex. The mineral rights of the large SA miners were expropriated (sound familiar ?) by the ANC and doled out to the wannabee miners. The ANC thought that they would have mines at every place the Merensky reef, Platreef and UG2 exists. They would cash in on the royalties and plunder the profits and there would be enough gravy to go around for the cadres for a long time. Unfortunately it wasn’t to be. The metallurgy of PGE extraction is highly complex compared with gold. Near surface deposits are valueless as they don’t float (no sulphides). UG2 ores have high tailings grades as comminution is a huge issue. No liberation, no flotation, no PGEs. The price crashed and only the established low cost producers survived. Then the unions had a go at the industry and brought it to its knees. Further loss of demand from auto catalysts will only exacerbate the situation. Even under the best fuel cell scenario, platinum demand will not be replaced.

Platinum unlike gold is a commodity metal not a monetary metal i.e. store of wealth. It is very much subject to supply demand fundamentals. The winds at the moment are chilly and bite deep.

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