What could be the catalyst for higher platinum prices

What’s been going on with platinum?

After hitting a 2024 high of around $1,094 per ounce, the platinum price has now settled under $1,000.

The reality is the platinum price is not much higher than it was five years ago. And it’s weighed heavy on platinum producers – particularly SA miners.

In their most recent results, Impala Platinum saw a 65.6% decline in earnings before tax and depreciation (EBITDA), Northam declined 62% and Sibanye’s SA PGM operations showed a 60% decline in adjusted EBITDA.

So, what’s been “killing” the platinum market?

Electric Vehicles (EVs) demand destruction!

In 2020, 3.2 million EVs were sold globally. By the end of 2023, that number has more than quadrupled to 13.9 million.
Unlike in conventional cars, which account for a large part of platinum demand, EVs don’t use the metal. Simply put – the EV boom accounted for much of platinum’s demand destruction over the past four years.

But the world has over-estimated the degree to which EVs will replace your standard combustion engine (ICE) car. After all, back in 2020 we heard bold predictions such as EVs would account for half new vehicles sold by 2025. Today, EVs account for less than 20% of new vehicles sold.

And while there are still big sales growth numbers in certain countries, the reality is, EV sales have started to slow down. Reasons range from affordability, lack of EV charging stations and falling demand.

Instead, people have switched to buying hybrid vehicles instead.

Which is good news for platinum.

Unlike EVs, hybrid vehicles need platinum

According to consultancy firm Rho Motion, the increase in sales of pure EVs globally in the first half of 2024 slowed to 11% year-on-year, while plug-in hybrid (PHEV) sales jumped 44%.

Even BYD – the largest EV company in the world by sales – confirmed a similar trend…

The company recently revealed its sales volumes are now 40% for EVs and 60% for hybrids. And it expects hybrid’s share to continue increasing.

So, why is this good news for platinum?

Well, hybrid cars use catalytic converters to curb pollution. And on average, hybrid’s use 10%-15% more platinum than ICE vehicles.

Major carmakers such as Toyota and Volvo have halted EV production plans. And, Ford, Toyota and Stellantis have all switched to promoting their hybrid plans in recent months.

I think carmakers will be more than happy to deploy resources to hybrids, because they have higher margins than EVs. And this continued rise in hybrid (and ICE) vehicles sales will see PGM demand head higher…

So much so, that according to the World Platinum Council, platinum’s supply deficit is forecast to increase from 731,000oz to over 1 million in 2024 – the largest annual deficit in a decade.

Whether this eventually translates into a higher price, we’ll have to wait and see.

For the contrarian,value oriented investor, it does present an opportunity to consider beaten-down platinum stocks – especially on the JSE. The rewards could be significant. If you’d like to know what we will be buying in the future, then get on the South African Investor list here.