Time for Platinum ETFs as the "Sleeping Beauty" Awakens?
The platinum market is set for a rebound as it faces supply challenges and a surge in demand, resulting in a supply deficit for the first time in three years. This tightening of the market will likely increase platinum prices.
Ole Hansen, head of commodity strategy at Saxo Bank, refers to the precious metal as the market's “Sleeping Beauty”, due to its troubled supply origins and participation in the green transformation. Hansen suggests that the return of investor demand through ETFs could push the platinum market into a supply deficit, as quoted on kitco.com.
abrdn Physical Platinum Shares ETF PPLT, GraniteShares Platinum Trust PLTM and iPath Series B Bloomberg Platinum Subindex Total Return ETN PGM have gained about 12-13% each in the past month. These products are up in the range of 3-4% each past week.
Let’s delve a little deeper.
Russia-Ukraine War
Russia's invasion of Ukraine probably has led to a considerable uptick in platinum demand as automakers substitute the metal for palladium. Russia is pallidum-rich. As of 2022, one Russian mining company (MMC Norilsk Nickel PJSC, the world's largest nickel producer) produces about 40% of Russian palladium. Notably, Russia produces about 30-40% of the world’s palladium.
According to the report of Country Sources of 2021 U.S. Palladium Imports, Russia exported 35% of the Pallidum requirement of the United States, followed by South Africa (31%). With Russia facing Western sanctions, it is anybody’s guess that finding some substitute has become necessary. And that’s where platinum won.
Platinum Emerging as a Replacement for Palladium
As platinum is increasingly being used as a substitute for palladium in the production of emission-control catalytic converters, its demand is expected to grow. Additionally, platinum's role in environmentally-friendly hydrogen fuel-cell-powered vehicles makes it an essential component in the push for greener technology.
Platinum is Still a Value Play
Investors are beginning to recognize the value in platinum as the precious metal's price reaches its highest level since the start of the year. Outperforming gold and silver, platinum is an attractive asset for investors seeking value in the precious metals sector, according to the World Platinum Investment Council, as quoted on Kitco.com.
According to WPIC CEO Trevor Raymond, platinum is still under-owned and undervalued compared to gold and palladium. Over the past five-year period, abrdn Physical Palladium Shares ETF PALL, GraniteShares Gold Shares BAR and abrdn Physical Silver Shares ETF SIVR added about 8.4%, 8.1% and 7.6%, respectively, while PLTM was up only 2.7%.
Platinum: A Great Industrial Metal
Industrial use of platinum has jumped nearly four times since 1980. It plays a role from manufacturing fertilizers and fiberglass to airbags and sticky notes. Its contribution to the healthcare sector is also notable. Platinum is a biologically compatible metal because it is non-toxic. It does not react with, or harm, body tissue. Hence, it is heavily used in the medical sector and cancer treatments, per a platinuminvestment.com article.
The Rise of Green Energy: A Plus for Platinum; Bullish Analysts’ Views
Some analysts believe that the current rally in platinum prices is not just driven by technical momentum but also supported by strong market fundamentals. Despite challenges in the auto sector, platinum has found its place in the global green energy transition, playing a crucial role in hydrogen fuel cell technology.
Although the demand for platinum in the hydrogen industry is currently low, it will significantly increase throughout and could account for up to 35% of total annual platinum demand by 2040, per CME Group. Improving economic data from China has resulted in robust demand for platinum jewelry.
Meanwhile, ongoing power disruptions in South Africa have continued to affect platinum production and has been contributing to the bullish outlook. Phillip Streible, chief market strategist at Blue Line Futures, believes that platinum "is one of those metals you should have in your portfolio because of its potential," as quoted on kitco.com.
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abrdn Physical Silver Shares ETF (SIVR): ETF Research Reports
iPath Series B Bloomberg Platinum Subindex Total Return ETN (PGM): ETF Research Reports
abrdn Physical Platinum Shares ETF (PPLT): ETF Research Reports
abrdn Physical Palladium Shares ETF (PALL): ETF Research Reports
GraniteShares Gold Trust (BAR): ETF Research Reports
GraniteShares Platinum Trust (PLTM): ETF Research Reports
