After the dramatic decline of the price of platinum by 23.3%, from its peak price of $1,923.7 an ounce on August 22, 2011, to $1,461.8 an ounce on May 31, 2013, one might ask if an investment opportunity has arisen. In order to find out if now is the right time to invest in platinum, the fundamental parameters of this precious metal - demand, supply and reserves - require analysis. In this article, I will summarize the global demand for platinum.
Data: TradeStation. Inflation was calculated according to the U.S. Consumer Price Index (NYSEARCA:CPI).
Platinum is a precious metal that will never tarnish, lose its rich white luster, or even wear down through the years, and just like gold, it can be a safe haven in the current environment of uncertainty in the global financial markets. However, platinum is not just that, it is also an extremely important industrial metal because it possesses exceptional properties. As a pure metal, platinum is silvery-white, lustrous, ductile, and malleable. Platinum's resistance to wear and tarnish is well suited for making fine jewelry. The metal has an excellent resistance to corrosion and high temperature and has stable electrical properties. All of these characteristics make it usable for industrial applications.
On May 13, Johnson Matthey PLC published its "Platinum 2013" report, all the demand data for this article were taken from this report.
The chart below presents the world total demand for platinum since 1975. The platinum demand rose from 2.58 million ounces in 1975, to 8.045 million ounces in 2012, this represents Compound Annual Growth Rate (OTCPK:CAGR) of 3.12%.
The chart below shows the distribution of platinum demand in 2012 according to its use.
The main use of platinum is in automobiles as a catalytic converter, which allows the complete combustion of low concentrations of unburned hydrocarbons from the exhaust into carbon dioxide and water vapor. According to Johnson Matthey PLC in its report "Platinum 2013":
Gross demand for platinum in autocatalysts rose by 1.7% to 3.24 million ounces. Weak European demand for platinum, due to depressed light vehicle output and a lower market share for diesel vehicles, was more than offset by higher demand in Asia and North America and by increasing demand for platinum autocatalysts for non-road diesel engines.
The chart below presents the total demand for platinum in autocatalysts since 1975. The platinum demand rose from 0.36 million ounces in 1975, to 6.12 million ounces in 2012, this represents an impressive Compound Annual Growth Rate (OTCPK:CAGR) of 6.12%.
The second main use of platinum is in Jewellery. According to Johnson Matthey PLC :
Gross world jewelry demand for platinum improved by 12% in 2012 to 2.78 million ounces. It was boosted by expansion of the retail jewelry distribution network in China, allied to a degree of increase in manufacturers' finished jewelry stocks. Investment demand for platinum was steady at 455,000 oz, with strong investor interest in North America and a rise in the minting of platinum coins.
The chart below presents the total demand for platinum for jewelry since 1975. The platinum demand rose from 1.21 million ounces in 1975, to 2.78 million ounces in 2012, this represents Compound Annual Growth Rate (OTCPK:CAGR) of 2.27%.
Industrial demand for platinum in 2012 represented 16.3% of the total platinum demand. According to Johnson Matthey PLC:
Industrial demand for platinum in 2012 fell by 21% to 1.57 million ounces. It was affected by a slowing of expansion in the glass industry, reduced production of hard disk drives in the electrical industry and the drawdown of inventory in both sectors. Chemical demand was slightly lower than in 2011, while demand for platinum in other applications was stable.
The chart below presents the Industrial demand for platinum since 1975. The platinum demand rose from 1.01 million ounces in 1975, to 1.5 million ounces in 2012, this represents Compound Annual Growth Rate (OTCPK:CAGR) of 1.20%.
In contrast to gold where investment demand represented 47% of total 2012 demand, physical demand for platinum in the investment sector represented only 6% of the total demand. According to Johnson Matthey PLC :
Net identifiable physical demand for platinum in the investment sector reached 455,000 oz in 2012, only 5,000 oz lower than in the previous year. Investment in exchange traded funds (ETFs) tended to fluctuate in accordance with changes in the platinum price, demand for platinum ending the year marginally higher compared to 2011. Significantly lower net purchasing of large bars in Japan was largely offset by a combination of increased demand for coins and small bars and the acquisition of metal for the launch of a new physically-backed product in North America.
Here are some important ETFS and ETNS for platinum which are traded on NYSEArca:
The table below presents the trailing total returns of holding these funds; year to date (May 31), one year, three years and five years. The returns for the three and five years are annualized.
After analyzing the late platinum demand trends, we can see that the long term demand for platinum in autocatalysts has grown by an average of 6.12% a year, even in 2012, a year of mediocre global economic growth the demand for platinum in autocatalysts rose by 1.7%. The jewelry demand for platinum improved by 12% in 2012 and the long term demand has grown by an average of 2.27% a year. The long term total demand for platinum has grown by an average of 3.12% a year. In my next article, I will discuss the tendency of platinum supply and reserves, and I will show that the platinum market was in deficit by 375,000 ounces in 2012 due to a steep decline in output from South Africa. Also in the next article, I will explain the reasons why I recommended investing in platinum now, with a long-term perspective.