Why is Platinum so precious? What is the value of Platinum?
From my previous article What is Platinum?, I have already
introduced What Platinum is. So today, I am going to tell you why is Platinum
so valuable and even more precious than Gold.
Why is Platinum so PRECIOUS?
Rareness is the curial answer to this
question.
The supply is under deficit in the globe.
Demand is always higher than supply due to insufficient mines in the world,
indeed. Around the world, there are only a few Platinum mines, including Montana,
in the USA; Western Ontario, in Canada; the Ural Mountains in Russia; but about
80% of the Platinum is from Bushveld, in South Africa. Learn more from Major
countries in global mine production of platinum from 3014 to 2018 from
Statista.
What kinds of Value does Platinum have?
Industrial wise value
Platinum is one of the most critical
elements during the manufacturing process and regarded as an irreplaceable
component.
Based on the World Platinum Council, the demand
in industrial use between 2017 and 2018 has increased from 1,700 Koz to 1,935
Koz; we were encountering actual demand increase in the petroleum, glass,
medical and biomedical industry use. The table is shown below:
Source: Platinum Quarterly Q1 2019 from
World Platinum Investment Council https://www.platinuminvestment.com/files/128443/WPIC_Platinum_Quarterly_Q1_2019.pdf
Platinum is unreactive to acid, and
therefore Platinum is widely used in various industry, like electronics,
chemical and automobile industries. The irreplaceable importance of Platinum is
obvious when it is used as catalytic converters, for instance. Almost 80% of
the supply in the market of Platinum is being used as catalytic converters. For
example, the most typical application of Platinum is in the automobile industry
when building the exhaust system of the car. Read more from Determination of Precious Metal Content in Catalytic Converters Using EDXRF.
Platinum is acting as catalytic converters
to react with exhaust gas, so toxic gas is a filter which is upholding its
unique position in the automobile industry until 2008. In 2008, Japanese Mitsui
Mining and Smelting Company announced that they had developed a catalyst that
can replace Platinum with Silver, yet have not put it into actual production.
So, this can somehow explain why the price of Platinum reduced sharply in May
2008 from 2,136 USD per troy ounce to 801 USD per troy ounce in December 2008
is. The latter part of this article will further explain the prices between
Platinum and Gold.
Where does Platinum go to?
As mentioned above, Platinum is a type of
precious metal that has practical use other than being a piece of jewelry. But
the question is, where does this precious metal go to?
Source: Platinum Quarterly Q1 2019 from World Platinum Investment Council https://www.platinuminvestment.com/files/128443/WPIC_Platinum_Quarterly_Q1_2019.pdf
Here is a chart of the Platinum Demand
end-use shares in 2018 and the forecast in 2019. As you can see that the automobile industry was consuming about 40% of the Platinum in the market, and
then it comes to the Jewelry industry, which was contributing 32% of Platinum
in the market.
Jewelry wise value
Platinum is one of the rarest precious
metal in the world, learn more from What is Platinum? For consumers who are
looking for exceptional, unusual material that can reflect their individuality
Platinum is always the best option. Platinum stands out from the crowd with its
high density comparing to gold and silver; the natural brightness, and the
purity. When it comes to engagement ring or jewelry that you would like your
children, grandchildren, and even your great-grandchildren to inherit, then
Platinum is the best of the best. The reason is that Platinum is very
unreactive that it will not oxidize and erode under 1000℃. Therefore Platinum
is famous for its changeless property.
But why is the price cheaper than Gold?
Even though Platinum is rarer than gold,
the market price for Platinum is lower than Gold in recent years. However, in
the past 100 years, Platinum has a much higher market price comparing to Gold.
So, why is the price dropping n recent decade? What happened? Before getting
deeper into this topic, let’s look at the market price comparison for both
Platinum and
Gold in the past 15 years.
Platinum
Prices vs Gold Prices from 2004-2018
USD per
troy ounce
Yellow: Gold; Blue: Platinum
The market price of Gold had started to
surge and outperformed Platinum since 2008, while mentioned in the former
passage, this could be related to the discovery of Platinum substitute in
performing catalytic converter for automobiles. According to the Law of Demand,
when demand decreases, the price will decrease as well. So, this can explain
why is the price surging incredibly during the 2000s for the Platinum’s market
price. During the 2000s, the global economy was performing well, especially in
the automobile industry; hence, the demand for Platinum has also risen so as
the market price.
Source: Latest Price & Chart for Platinum https://www.nasdaq.com/markets/platinum.aspx?timeframe=10y
In 2016, there was a global surplus in Platinum supply,
causing a drop in market prices. According to Gold Fields Mineral Services(GFMS), global output recovered 27% to 6.16 million ounces, while in South
Africa, production was up 40%. The weak rand and a 23% reduction in costs also
augmented the production.
The global economy was not performing well
after the Great Depression in 2008, not to mention the automobile Companies in
the US. The demand for Platinum was influenced by the weak demand in an
automobile since Platinum is a core component in creating catalytic converters
in every car. On the other hand, the need of Platinum jewelry had decreased due
to lower purchasing power since 2014 and the anti-corruption regulations
proposed by President Xi. To sum up all
the external factors, Platinum’s price is lower than its capital value based on
its rareness.
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