Platinum – Commodity

Instrument description

Platinum is considered to be the rarest and most precious metal on Earth. Platinum is a greyish-white metal that is known for its distinct physical and chemical properties, which makes it an essential metal for wide industrial and commercial use. Today platinum is one of the most expensive commodity and completes the list of precious metals that also includes with gold and silver.

Platinum is a soft, ductile, and dense metal and part of the Platinum Group Metals that have similar physical and chemical properties and includes Palladium, Rhodium, Iridium, Osmium, and Ruthenium. The value of platinum is often compared to gold, but platinum is even rare than gold. Each year only 130 tons of platinum is extracted as compared to 1700 tons of gold. Both the gold and platinum are present in the form of ores, but platinum is extracted from ores, which can take six to seven to months. The cost of mining platinum is nearly twice that of mining gold.

According to statistics, only 200 million ounces of platinum is present above the ground as compared to 5 billion ounces of gold. Many of us are familiar with the value of platinum in engagement and wedding rings, but platinum is also used in catalytic converters for the auto industry. The wide uses of platinum includes

• The auto industry uses nearly 40% of the annual platinum supply. The platinum is used in catalytic converters that help to trap carbon emissions and prevent pollution from automobiles
• The jewelry industry accounts for 30% of platinum demand, and the shiny and valuable platinum is used in rings, bracelets, necklaces, and watches.
• Almost 25% of platinum is used in industries and the following applications, such as spark plugs, dental equipment, turbine engines, and oxygen sensors.
• The remaining 5% of platinum is used for investment as platinum is both precious and rare metal. Countries such as the USA, Australia, Canada, and China also use platinum to mint coins. Investors also buy platinum bars and ingots and use them as investments.

History of Platinum

An Italian scholar named Julius Caesar Scaliger was the first person to mention platinum in 1557. Platinum is mostly extracted from placer deposits that naturally found in concentration of heavy minerals. The placer deposits are the result of Earth’s gravity on moving particles. Miners also extract platinum from ores of sperrylite. The process of recycling also adds to the platinum supply.

The total mining of platinum in a year is equals to 170,000 kilograms. However, the number has declined in recent years as mining companies have slowed down and even stop production due to low prices. The largest reserves of platinum are said to be in Bushveld Complex, South Africa, which supplies nearly 75% of the entire global platinum. The top five platinum mining countries (in kilograms) are

• South Africa - 120,000
• Russia - 23000
• Zimbabwe - 13000
• Canada - 9000
• United States – 3900

Platinum is a precious metal that has a global demand, and half of the demand comes from Europe while the U.S demands 15%, Japan 10% and China 5% of the annual demand. The remaining 20% of platinum demand comes from rest of the world. The PGM reserves are the indicator of how much metals can be economically mined. South Africa has more than 90% of PGM reserves. But mining is quite costly, and there is a huge cost in extraction, processing, storage, and transportation of the PGM reserves. The top five countries with most PGM reserves (in kilograms) are

• South Africa - 63,000,000
• Zimbabwe - 1,200,000
• Russia - 1,100,000
• S.A - 900,000
• Canada - 310,000

Supply and Demand of Platinum

Like most metal commodities, the prices of platinum is also driven through its supply and demand. The demand for platinum is driven by both its industrial usage and an investment opportunity. The demand for platinum is similar to that of gold and silver, as being rarest metal, the supply of platinum is centered in South Africa that accounts for more than 75% of the annual platinum demand. The political situation and economic growth in South Africa play an important role in determining the price of platinum.

How to read the price change of Platinum

Platinum is traded 24 hours and 6 days a week on the Chicago Mercantile Exchange (CME) Globex, which is a global platform that allows electronic trading. The symbol of platinum on the CME Globex is ‘PL,’ the price quotation in USD per troy ounce, and the minimum contract is 50 troy ounces. The trading hours are 22:00 to 20:59 (GMT). You can trade platinum with Contract for Difference (CFD) in the U.K. from Monday to Thursday.

If we look at historical values, the all-time high value of platinum was $2,253 per oz. in March 2008 while the all-time high value of platinum was $97.70 in January 1972. The platinum price is valued by USD/t oz. where USD is U.S Dollar and t oz. refers to troy per ounces.

When we examine the platinum price chart, we see the platinum prices trades from $850 to $1050 troy per ounces from September 2019 to the first week of March 2020. The highest value of platinum was $1011.15/t oz. on February 19, 2020. There was a noticeable drop in the price of platinum in the second week of March, and platinum prices dropped to the lowest value of $620.18/t oz. on March 19, 2020. The platinum prices steadily began to trend at higher values again at the end of March, but there have been constant fluctuations, and currently, the price of platinum is $842.76/t oz. The Bid price is $842/t oz. while the Ask price is $832/t oz.

How to Trade Platinum

The importance of platinum is already established with its wide industrial use and its value in extravagant jewelry items. Trading in platinum can be quite beneficial as, like gold; platinum can retain its value during inflation, currency devaluation, and other economic crisis.

The platinum market is quite volatile with large price swings that allow short term traders to try and take advantage and speculate the price movements to potentially gain from it. Platinum can be an ideal tool for diversifying a portfolio . With time the automotive and industrial sector will prosper, and so will the demand of platinum. Investors can gain at times when the U.S Dollar value depreciates.

The common ways to invest in platinum are by using Bullion; Exchange Traded Funds (ETFs), Futures, Options, Contract for Difference (CFD), and Shares. Platinum Bullion is one of the simple ways to invest by buying platinum coins and bars. In the U.S, traders can buy platinum coins that have a purity level of 99.95%. But buying coins and bars means you also have to pay storage costs.

The platinum Futures contracts are offered on the CME, where you can use leverage to buy contracts that are valued at the price of platinum. If prices fall, then you have to pay an additional amount to maintain your trading position. The expiration months are January, April, July, and October, and at expiration, the contracts are physically settled with the delivery of platinum. You also have to consider the interest rates and storage costs when investing in platinum Futures contracts.

One of the most popular ways to trade platinum is through CFDs, which is a derivative contract between you and a broker. For example, if you want to trade $1000 worth of platinum, with a leverage of 1:10 then you only have to deposit $100.

With CFD, you have the option to predict on the price difference of underlying asset from opening to closing of the trade. While speculating on the underlying asset, you do not have to own or store physical platinum. Trading CFDs also gives you the benefit of trading Long or Short, and you can potentially profit from both Bullish and Bearish market trends if your prediction is correct. There is an equal chance of magnifying your gains and also the chance of losses, but a risk management strategy can be implemented.

Another way to invest in platinum is by buying shares of platinum mining and exploration companies. When the platinum rises, the investors can magnify their profits. Some of the recognized platinum mining and exploration companies include Anglo American Platinum, Impala Platinum, Norilsk Nickel, Lonmin, and Sibanye Stillwater

What causes the price change of Platinum?

Platinum is quite a popular and valuable metal along with gold and silver. Platinum serves a wide range of purposes and is also used to diversify an investment portfolio due to its value. The factors that influence the prices of platinum in the commodity market are

• The economy of South Africa

South Africa not only supplies almost 75% of the world’s platinum but also has more than 90% PGM reserves. South Africa is still considered to be a developing nation, and the markets are quite volatile and change frequently. Political unrest and labor strikes can considerably lead to slow extraction and production of platinum. The factors such as taxes, restrictions on land use, and nationalization of assets can also affect the supply of platinum and its subsequent price in the commodity market.

• The Status of Auto Industry

Almost 40% of platinum is used in catalytic converters that are essential components in the manufacturing of automobiles. The trends and growth of the auto industry also influence the price of platinum. The platinum prices rise when there is a constant demand for vehicles in the world, and prices of platinum fall when there is a slump in automobile production. The growing concern of increasing pollution in the environment has caused strict regulations for carbon emissions from vehicles, which has increased the demand and usage of platinum.

• Changes in Catalytic Converter Technology

The auto industry technology advances at a rapid pace, and there has been constant advancement to reduce carbon emissions, but this could impact the price of platinum. The high price of platinum and its rarity can force auto manufacturers to pursue alternative technologies. Another PGM, Palladium, has now replaced platinum in the production of catalytic converters. The growth in alternative technologies can further decline the demand for platinum.

• Advancement in Electric Vehicles

The advancements and growing trend of electric vehicles have caused a decline in demand for platinum. But factors that affect electric cars include environmental laws and the price of oil.

• Investment Demand

Platinum is used for only a small percentage by investors, but a weak U.S Dollar and an increased in gold prices can drive many of the investors to substitute gold with platinum.

Platinum, like other commodities, is denominated in U.S Dollars, which also means that platinum has an inverse relationship with U.S Dollar. For example, a weak USD would mean a rise in platinum prices, while a rise in USD would result in a decline in platinum prices. The mining strikes in South Africa, unfortunate mining accidents, increase demand for platinum in developing countries, and environmental laws on the standard of exhaust emissions are all the vital factors that determine the price of platinum.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.