PLATINum – MYSTERious white metal

Platinum is the 78th element in the periodic table. The chemical symbol, Pt is derived from the name platina. Platinum is a heavy but soft, very corrosion resistant metal. It belongs to the group of so-called platinum metals (which also includes osmium, iridium, ruthenium, rhodium and palladium).

Although platinum is often seen as a “new metal”, the history of this metal is often older than one might think. Both the Egyptians in 3000BC as well as the Incas and the Spanish came into contact with platinum metals. In the late 18th century, the Spanish even thought it to be “unripe” gold and gold prospectors threw it back into the river. This gave gold forgers a free hand, as it had the same weight and characteristics as gold, only the gold sheen was missing. This led to the Spanish government announcing that all platinum found was to be sunk at sea and additionally ordered a ban on exports of the metal in order to prevent smuggling and forgeries.

Today, it is impossible to imagine a world without platinum, which is used in various sectors. Besides the jewellery industry, it is beginning to play a serious role in the automobile industry. Furthermore, this white-shimmering precious metal is gaining popularity amongst investors.

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Supply and demand

Platinum is an extremely rare metal. It is 30 times rarer than gold and is mined below ground. Due to its physically excellent characteristics it is mainly used in the automobile industry in catalysers. Higher quantities of the precious metal lead to further improvement in exhaust emission values. In view of the increasingly stringent emission regulations, the proportion of platinum as well as palladium is increasing drastically.

Platinum deposits are rare and distributed unevenly across the globe. In South Africa, the biggest producing country, production increased slightly in 2009, however, there are continuing problems with extraction. Aging mines, increased production costs, currency fluctuations in the South African Rand and high costs for personnel training have a negative effect on extraction. In addition, there are problems with supplying electricity to the mines due to a lack of investment in infrastructure. Aging electricity networks and coal shortages, as well as concurrently increasing demands for electricity, have led to the situation that the electricity supplies are no longer adequate.

South Africa dominates supply with more than two thirds. Russia, as the second biggest extractor, only holds a 12% share. This share results particularly from the fact that platinum is also extracted as a by-product in nickel production.

Platinum as means of payment

Platinum plays a lesser role as a means of payment. It was only in Russia under Czar Nikolaj Pavlovic (1825 - 1855) that platinum was used as a means of payment. The white metal originating from rich finds in the Urals was used as a replacement for the less valuable gold. It was only in 1845, when foreigners were willing to pay more for the valuable metal than for gold, that platinum minting was abandoned.

How is the platinum price determined?

The fair value for platinum is also created by supply and demand. The prices for precious metals are determined daily on the world’s financial markets. Therefore, in the past, there was evidence of a negative stock-commodity correlation. In times of strong share markets, the price for raw materials would decrease. It was only in troubled times and turbulent markets that investors would invest in real values such as precious metals.

Similar to gold and silver, the platinum price is determined on the free market by fixing the platinum price, which takes place over the telephone. The fixing takes place twice every trading day on the London Platinum & Palladium Market. Furthermore, New York is an important trading location for platinum.

Numerous factors affect the platinum price:

  • The current rate for US dollars (as platinum is traded in USD)
  • Price development and mining quotas for metals where platinum is extracted as a by-product
  • Supply (above all in South Africa) and demand (particularly the jewellery and automobile industry)
  • Global economic cycles
  • Political unrest
  • Global warehouse inventories

Platinum as an investment

Platinum is far rarer in the earth’s crust than gold. The platinum extracted to date would fit into an average sized living room. At the same time application uses are much broader than for gold. It is estimated that nearly every fifth object used today contains platinum or requires platinum for its manufacturing process. The white metal is of particular significance in catalyser production. Platinum is also of special importance for the production of heatproof materials. As platinum only melts above a temperature of 1,700° C, vessels and alloys made of this raw material are required for laboratories. Another important sector which uses this raw material is medicine. Platinum does not trigger immune system responses or cause long-term damage in the human body. Therefore, platinum can be used to manufacture prostheses and electrical contacts which can support or replace human organs (e.g. pacemakers or subcutaneous hearing aids) (Source: http://www.beyars.com/de_platin-verwendung.html).

Today, besides its application in the automobile and jewellery industry, platinum is a metal which has gained increasing popularity amongst investors. In addition to bars, platinum coins are particularly in high demand. The demand created by physical ETFs has also increased in recent years. Europe leads the investment demand by far. In 2009, investors demanded 355,000 ounces of platinum in Europe alone. This is followed by Japan with 170,000 ounces and North America with 100,000 ounces.

Here, its economic value is not the only important purchase reason, but also the fear of increasing inflation. Additionally, the mines, with their partially poor infrastructure cause price increases due to break downs. The highest peak for physical platinum demand was recorded in the 1980s. Due to the fear of supply bottle necks in South Africa due to the unrests against the ruling Apartheid, sales numbers of physical bars and coins reached their highest point in 1988 at 630,000 ounces (Source: Johnson Matthey, 2010).

Did you know that...
  • one would need to find at least 2 tonnes (10 tonnes) of ore in order to create a ring from pure platinum.
  • the name platinum is derived from the Spanish word “platina” which means “little silver”?
  • during the Second World War, USA declared platinum as a strategic metal and banned all non-military use.
  • that a 2 km long wire can be created from a gramme of platinum.
  • a platinum disc does not contain platinum, it is actually only made of plastic coated with silver.
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