Platinum Price Soars to 6-Year High on Weak Global Supplies

Feb 11, 2021 09:30 PM ET
Platinum Price Soars to 6-Year High on Weak Global Supplies

The platinum price soared to its highest level in more than six years, helped by a relatively weak US dollar and the ongoing supply challenges. The metal is trading at $1,242, which is more than 125% above the lowest level in 2020.

Supply shortages help the platinum price

Platinum is an essential metal that is used as a catalytic converter, mostly in diesel-powered cars. In the past few years, the price of the metal moved relatively sideways after the Volkswagen emission scandal. Instead, palladium, a member of the platinum-group metals (PGMs), soared, becoming the most precious metal in the world.

This year, however, things have changed as demand for platinum has soared while supply has been relatively weak. This is in part because of a refinery failure in South Africa that is run by mining giant Anglo American. The plant has been closed for the past few months, and there is a likelihood that it will come online in the next few months. 

In a statement this week, Johnson Matthey, a UK-based company that manufactures autocatalysts, said that the industry was undersupplied by about 390,000 ounces last year because of the impact of the coronavirus. The company’s CEO expects that this trend will remain throughout this year. 

This undersupply comes at an important period for the industry. Analysts expect that demand for cars will increase this year as the global economy recovers. In fact, in their most recent earnings releases, companies like Ford and General Motors have boosted their outlook for 2020. Most of this demand will be from China and the United States. Analysts predict that new auto sales will increase by between 7% and 15% this year.

In the statement, Johnson Matthey said it expects demand for the metal to go back to pre-pandemic levels later this year.

Platinum is not the only metal to be undersupplied this year. Palladium will be in short supply for the tenth consecutive year, while rhodium will be undersupplied for the fourth straight year.

Weak dollar supports platinum

Meanwhile, the platinum price is also being helped by the overall weak US dollar. The US dollar index has dropped by more than 10% from its highest level in 2020. It has dropped by more than 10% against the South African rand and by more than 11% against the Russian ruble. 

This is important because South Africa and Russia are among the biggest suppliers of platinum. At the same time, platinum is usually sold in dollars. Therefore, like other metals, such as gold and copper, they tend to do well when the dollar weakens. That’s because a weak US dollar tends to boost demand for the metal by making it relatively cheaper.

Further, the actions that have brought the dollar down are positive for the metal. For example, the low-interest rate by the Federal Reserve has lowered the cost of borrowing by individuals and businesses. Similarly, the large stimulus offered by countries like the United States and those in the European Union has also been useful to the metal.

Platinum price technical analysis

Platinum price technical analysis

On the daily chart, the platinum price has been on a strong uptrend and is being supported by the 25-day and 50-day moving averages. In its uptrend, the price has also formed an ascending channel that is shown in pink. In fact, it moved above the upper side of the channel this week. Therefore, in the near term, the price will likely continue rising as bulls target the next psychological level of $1,400.

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