Silver has surged almost 50% in US dollar terms over the past 12 months. Gold’s performance hasn’t been quite as stellar, though a near-40% dollar return over that time frame is still pretty good. Yet fellow precious metals platinum and palladium are clear laggards. Platinum has managed a mere 11% dollar gain during the last year, while palladium, despite its recent bounce, has eked out a measly 7% increase. Within the last 20 years, though, both metals have made enormous gains. So what does the future hold for these two PGMs (platinum group metals)?
Platinum's prospects
Platinum has unique physical and catalytic properties. Thirty times scarcer than gold, it’s one of the world’s rarest metals. All the gold ever produced would fill three Olympic-sized swimming pools. But the total amount of platinum ever mined would merely cover your ankles in one such pool. Perhaps because it is so scarce, “few people are currently aware of the full range of interesting and highly beneficial things that platinum does”, says the World Platinum Investment Council (WPIC). Yet the metal is used in four core areas.
1. The auto industry In the past five years, between 30% and 44% of total demand has come from the car industry. Ever-stricter regulations make platinum key to cutting vehicle emissions. “Auto catalyst demand for platinum is predicted to grow well into the decade, despite ongoing electrification of transport,” notes the WPIC, “because more platinum per vehicle is needed to achieve lower emissions requirements.”
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Platinum’s catalytic and conductive properties turn hydrogen and air into water in zero-emission fuel-cell electric vehicles (FCEVs). The latter don’t need charging: they refuel in three minutes and have a 600-kilometre (375-mile) range. Buses and lorries are driving the sector’s expansion while extra refuelling infrastructure is developed. Demand from FCEVs will grow faster as the decade progresses, says the WPIC, and will eventually match current platinum automotive usage. Platinum is also used to make other vehicle components such as spark plugs and temperature control sensors, and oxygen monitors to support more carbon dioxide-efficient engines and airbags.
2. Industrial usage Between 27% and 36% of the last five years' demand has been made up of industrial usage, for example making nitric acid for fertiliser and obtaining a greater yield from high-octane fuel. Platinum’s high melting point, stability and non-corrosiveness are key to glassmaking, while LED screens and glass fibre are made using platinum. Well tolerated by the body, the metal also has medical applications. Platinum-made compounds help treat cancers, while pacemakers contain platinum electrodes.
3. Hydrogen Then there’s the new demand driver which is hydrogen. Proton exchange membrane (PEM) technology uses platinum catalysts in electrolysers to produce carbon-free green hydrogen. This can replace fossil fuels in a wide range of applications such as power generation, heating and steel manufacturing. It can also help to make aviation fuel as well as provide a power source for the above-mentioned FCEVs.
4. Jewellery Platinum jewellery, meanwhile, has comprised between 23% and 30% of the metal’s use over the past five years, with China as the world’s largest market. Investment has been responsible for the remaining global demand. Historically this has been variable, but that may soon change.
Platinum will remain in deficit “for the foreseeable future”
WPIC
In its most recent Platinum Quarterly, the WPIC forecast total 2024 demand growing 3% to 8,118 koz (thousand ounces). With supply (curbed by ongoing price drops) expected to decline 1% to 7,089 koz, 6% below the five-year average, the council expects a market deficit of 1,028 koz. Within this, full-year automotive demand is seen reaching a seven-year high of 3,237 koz, with the industrial, jewellery and investment segments all growing, too. Above-ground stocks are set to decline 25% to a four-year low, thus reducing demand cover to four months. Not only is that bullish in the short term, but platinum’s long-run prospects are, too. Demand from electrolysers and hydrogen fuel cells is set to grow strongly, reaching almost 900 koz per annum by 2030, says the WPIC. It forecasts platinum will remain in deficit “for the foreseeable future”, which would boost the price.
Factors that could drive platinum higher
Platinum’s value has been suppressed recently by concerns about future automotive demand. EU member states last year approved an emissions regulation that would stop sales of new carbon dioxide-emitting cars and vans in 2035. However, BMW has just said that such a ban is “no longer realistic” as electric vehicle (EVs) sales slow, meaning that Europe’s auto industry would experience a “massive shrinking”. In short, fossil fuel-powered vehicles could still be around for a long time. Yet fears over 2035 have affected future supply.
“Narrowing margins have led major miners to restructure plans to optimise costs,” said Daniel Hynes and Soni Kumari of ANZ Research. “This will likely delay growth projects and keep some mines in a state of care and maintenance. The delay in capex [capital expenditure] expansions is also weakening the prospects of long-term production growth.” In short, future platinum supply will continue to be curbed. For 2025, ANZ Research sees platinum reaching $1,273 per ounce, up almost a quarter from the present level.
Yet another factor could drive it much higher. Platinum has a long history of being a monetary metal. It was used as coinage in Czarist Russia, while modern examples of platinum coins include the Isle of Man Platinum Noble in 1983, Canada’s Platinum Maple Leaf in 1988, the American Platinum Eagle in 1997 and the Royal Mint’s Platinum Britannia coins in 2018. Yet the platinum/gold ratio (the price of the former divided by the latter) has dipped from 2.39 in 2001 to roughly 0.38, near the all-time low.
Even allowing for past concerns over platinum’s prospects, that’s an extraordinary drop. Were the metal to regain the mid-point of this range, the ratio would be 1.38, which at gold’s current value would lift platinum to almost $3,800 per ounce, 3.7 times the present price. Chinese economic stimulus measures could be one potential catalyst for such a revaluation.
Another might be Russia’s Ministry of Finance. It plans to buy platinum once again in 2025, according to the draft federal budget, to increase the share of highly liquid assets in Russia’s State Fund. And if global players start investing in platinum seriously, the price could really take off.
Now to palladium
Most of palladium is employed in catalytic converters for cars but it has a number of uses:
It’s also used in jewellery and some dental fillings and crowns.
White gold is a gold alloy that has been decolourised by alloying with another metal, sometimes palladium.
Furthermore, the electronics industry employs palladium in ceramic capacitors (layers of palladium sandwiched between layers of ceramic), which are used in laptops and mobile phones.
The metal is a good catalyst and is used in hydrogenation (treating with hydrogen). Hydrogen easily diffuses through heated palladium, providing a way of separating and purifying the gas.
Palladium's prospects Palladium is expected to stay in a deep deficit of 1,281 koz in 2024 as total mining supply drops 6% year on year, says the WPIC. The council recently revised its projections for 2025-2028. Total mining supply is now forecast to be 6% lower than previously predicted as mines react to lower metal prices, while total recycling supply is forecast to be 8% less than earlier thought. Granted, average automotive demand is forecast to be 2% lower per annum over the period to 2028. However, average industrial demand is expected to be 5% a year higher due to greater electrical palladium usage. In the longer term, then, the palladium price is likely to be more dependent on supply changes – in particular recycling – than on declining demand. The supply/demand balance, though, is still predicted to shift from consecutive market deficits to an eventual growing excess, leading to a 725 koz surplus in 2028.
That sounds inauspicious. Yet the picture is better than it looks. Palladium isn’t likely to go into surplus until at least 2026. Further, with supply set to be lower than previously forecast, near-term deficits could be higher and more prolonged than earlier expectations, while the move to eventual surpluses may take longer. In other words, downside pressure on palladium prices could be less than feared.
On balance, then, palladium’s longer-term fundamentals – though reasonable – look markedly less bullish than platinum’s. The metal has similar supply constraints and the potential for automotive demand to rise higher for longer, but it also has a less diversified usage base and lacks the potential boost from the emerging hydrogen economy.
Fifteen years ago, palladium was worth just 20% of platinum. Now it’s dearer. However, the palladium/gold ratio has declined from 1.7 in early 2020 to just 0.43, not far above historic lows. Were palladium to return to the mid-point of this range, the ratio would bounce to 1.06, which at gold’s current value would lift palladium to $2,900 per ounce. That’s 2.6 times today’s price. As with platinum, China’s stimulus measures could be a big factor in forcing up palladium’s price. And Russia’s Ministry of Finance, which accumulated palladium reserves in the Soviet era but sold them by 2012, also intends to buy the metal once again in 2025. What’s more, Bloomberg reports that the US has asked G7 members to consider sanctioning Russian palladium. As this makes up 40% of global supply, a major interruption could send the metal’s price soaring.
How to invest in platinum group metals
So what’s the best way to play PGMs? The top platinum and palladium miners are based in southern Africa, where political uncertainty makes them highly risky, but the potential rewards could be spectacular.
Sibanye-Stillwater (NYSE: SBSW) is a multinational mining and metals processing group with a wide portfolio of extraction and processing operations across five continents, although most of its mines are in South Africa. The company is one of the world’s largest platinum, palladium, and rhodium producers (it’s also a top gold miner), while other PGMs such as iridium and ruthenium feature on its product list.
The market value is $3.3bn, total equity is $2.5bn and there is a long-term debt of $1bn. The stock is on a 2025 price/earnings (p/e) ratio of 12. In other words, this is a cheap but risky way of playing the platinum and palladium potential price rises.
Alternatively, WisdomTree Physical Platinum (LSE: PHPT) is an exchange-traded commodity (ETC) play designed to offer a simple, cost-efficient and secure way to access physical platinum by providing a return equivalent to movements in the metal’s spot price, less the 0.49% management fee.
This ETC is backed by segregated, individually identified and allocated physical platinum held by the custodian bank, HSBC. If physical platinum rises say, 1% in a day, then the ETC’s price will increase by 1%, excluding fees (the converse also applies). For those who prefer an equivalent palladium investment, there is the WisdomTree Physical Palladium (LSE: PHPD)ETC.
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David J. Stevenson has a long history of investment analysis, becoming a UK fund manager for Oppenheimer UK back in 1983.
Switching his focus across the English Channel in 1986, he managed European funds over many years for Hill Samuel, Cigna UK and Lloyds Bank subsidiary IAI International.
Sandwiched within those roles was a three-year spell as Head of Research at stockbroker BNP Securities.
David became Associate Editor of MoneyWeek in 2008. In 2012, he took over the reins at The Fleet Street Letter, the UK’s longest-running investment bulletin. And in 2015 he became Investment Director of the Strategic Intelligence UK newsletter.
Eschewing retirement prospects, he once again contributes regularly to MoneyWeek.
Having lived through several stock market booms and busts, David is always alert for financial markets’ capacity to spring ‘surprises’.
Investment style-wise, he prefers value stocks to growth companies and is a confirmed contrarian thinker.
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