Platinum mining. Picture: Bloomberg/Waldo Swiegers
Platinum mining. Picture: Bloomberg/Waldo Swiegers

Once the rising star among commodity sectors, the SA platinum industry has, effectively, been the architect of its own demise. In anticipating higher demand, producers ramped up production. Only, the demand never transpired.

Instead, they oversupplied the global market, which for years had a supply-demand imbalance as a result.

Last month the price dipped below $800 an ounce — a level last seen a decade ago. And companies such as Impala Platinum and Lonmin continue to cut jobs and close shafts to keep their heads above water.

It’s hoped that something will change, and soon.

Back when producers increased production, it was thought that new emissions standards would drive demand. With platinum already used in the manufacture of car autocatalysts, it was expected that much more would be needed for vehicles to conform to emissions targets. Instead, manufacturers have met the standards without the need for more platinum.

Recycling of the metal has also helped to regulate demand.

It remains unclear what will improve the supply-demand dynamic and, in turn, the price.

Much money has been poured into finding new applications for platinum group metals (PGMs), but it’s still hoped that emissions standards will lift the metal prices.

Coronation equity analyst Nicholas Hops says demand for some PGMs is expected to grow as much as 11% by 2030, as environmental legislation in China and the rest of the world forces carmakers to use more of the metal in their vehicles. "We feel these new legislations are being underestimated. In the next five years, China, the largest vehicle market, will have the strictest emissions standards in the world," he says in a note.

Retailers are wary of buying platinum jewellery that, overnight, could be be worth less than what they paid for it

However, the biggest concern is the adoption of battery electric vehicles (BEVs), as these do not require the use of PGMs at all. But there are hurdles for rapid adoption of the technology, which still requires infrastructure, is costly and has long charging times, Hops says.

As such, "the transition of the industry will be evolutionary rather than revolutionary; it is not all going to change overnight".

Hops forecasts that BEVs will make up 19% of global light-duty vehicle sales by 2030 — up from 1% today.

There are also big hopes for hydrogen fuel cells, which use platinum and can power cars in a cleaner and more efficient way than batteries.

But these are more complicated and expensive to operate — and reports suggest that major vehicle manufacturers are finding ways to significantly reduce the amount of metal used in fuel-cell cars.

Hops, however, says one cannot ignore China and Japan’s championing of fuel-cell technology, and the heavy investment behind it. "Fuel cells are very PGM-intensive and stand to be a material boost to demand if successful," he says.

Also not to be ignored is the second-largest demand source for platinum — the jewellery sector. On this front the Platinum Guild International (PGI) is plugging away to create new markets for the metal. The organisation was set up in 1975 and has historically been voluntarily funded by SA platinum miners to create a demand for platinum jewellery through marketing.

Though fashion is important when it comes to any product worn for adornment, PGI tries to position platinum as timeless and virtuous — a gift for marriage and love — particularly in China, the world’s biggest platinum jewellery market. "We position [platinum] more as a metal of meaning," says PGI CEO Huw Daniel.

Even in India, a yellow-gold-loving market, platinum has made some inroads thanks to marketing from PGI. It is increasingly seen as the metal of choice of a new generation — affluent urban dwellers seeking relationships based on equality rather than the traditional patriarchal marriage. It has become "the symbol of more equal and inclusive love in India", Daniel says.

What it means

Stricter vehicle emissions standards and the jewellery sector offer hope for struggling platinum producers

From selling 175,000oz of platinum into the Indian market in 2015, PGI forecasts sales of 500,000oz by 2023. "So it’s still a very small business, but a high-margin one for the trade to prioritise," he says.

Because of the high margins in India, the market price of platinum there is not an issue. In other markets, however, the low price both helps and hurts the industry. Low prices may lead customers to choose platinum over its competitor metal, white gold. But retailers are wary of buying platinum jewellery that, overnight, could be worth less than they paid for it.

Still, for a metal with unique properties — and that is by far the most secure setting for diamonds — Daniel believes jewellery holds great opportunity for platinum when paired with effective marketing.

"While the industry has to wait and see what plays out in the automotive space — what the mix might be or the time scale is, we don’t know — jewellery is a demand that can be created by marketing," he says.

If a successful marketing programme is launched, a return may be seen within a year.