Sprott: Platinum Price Potentially at “Tipping Point” as Fundamentals Stack Up
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? In a May 29 report, Shree Kargutkar, managing partner at Sprott Asset Management (TSX:SII), provides an in-depth examination of the factors driving platinum’s recent rise, and analyzes whether market fundamentals can sustain these elevated prices.
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.
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. At that time, South Africa’s Council for Scientific and Industrial Research estimated that the economic costs were in the hundreds of millions of rand.
It also predicted that, in a best-case scenario, the problems would continue until 2022. However, instead 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.
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 (OTCQX:IMPUF,JSE:IMP) 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.
The Sprott report suggests that some believe exchange-traded funds could offset the platinum deficit. Nonetheless, it challenges the assumption, noting that investors aren’t likely to sell until prices reach a much higher level.
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. 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. The World Platinum Investment Council estimates that a 1 percent loss of EV market share would result in a 25,000 ounce increase in demand for platinum-group metals.
Balancing out the demand equation is a 9 percent decline in industrial demand to 2.22 million ounces in 2025. Even so, the sector’s needs are still trending above the 10 year average, and platinum’s use in the production of hydrogen and other green technologies means that demand could easily increase in the coming years.
Although platinum doesn’t have the same investor base as precious metals like gold and silver, investment demand is also expected to continue to increase, hitting 688,000 ounces in 2025. Sprott notes that, due to platinum’s chronic undervaluation, a recent surge in momentum has sparked interest in the metal.
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.
Overall, Sprott believes 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.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
