Exploding market interest: Could this rare resource be the world's most coveted commodity?
In recent times, hybrid vehicles have gained significant popularity among buyers, with the demand for hybrid cars surging globally. This trend is particularly noticeable in the countries involved in platinum production, such as South Africa and Russia, as these nations are the main global producers of platinum-group metals crucial for catalytic converters in hybrid cars.
The automotive industry's shift towards hybrid and gasoline vehicles has increased the demand for palladium and platinum. While palladium is more commonly used in gasoline vehicles, platinum is increasingly being used in hybrids, particularly as a substitute in diesel vehicles.
The World Platinum Investment Council (WPIC) reported the strongest demand from the automotive industry in the first quarter since 2017, a testament to the growing trend. This surge in demand, coupled with a tight supply situation, suggests significantly higher platinum prices in the future.
In fact, the WPIC estimates a supply deficit of 476,000 ounces for the current year. This deficit is a significant increase from last year's record deficit of 851,000 ounces.
South Africa, the world's largest platinum producer, accounts for more than 70 percent of global production. Approximately 40% of the world's platinum is used in catalytic converters, a vital component in hybrid vehicles.
The increased demand for hybrid cars is not limited to any particular region. In Germany, for instance, between January and July 2024, 11.7 percent more hybrid vehicles were sold compared to the same period the previous year. Similarly, China, the world's largest car market, is seeing an increasing share of hybrid cars. Even US automakers have adjusted their production due to the rising demand for hybrid cars.
The still low platinum price is a significant problem for mining companies, forcing them to cut costs and reduce production. However, higher-risk investors can leverage potential platinum price increases with options.
Investors interested in platinum can consider physically-backed Exchange-Traded Commodities (ETCs) on platinum (WKN: A1E K0H) for investment. The demand for these ETCs has increased significantly, with a net inflow of 444,000 ounces in the second quarter of the year.
As the demand for hybrid vehicles continues to rise, so does the demand for platinum. This situation is likely to persist, making platinum a commodity worth watching in the near future.
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