Commodities consultant elaborates on investor sentiment around platinum

A global dip in commodity prices has dealt a significant blow to the mining industry in South Africa, which is made worse by the fact that the gradual departure of diesel automobiles from the global market is driving platinum prices down at a staggering rate, according to Managing Partner at CPM Group Jeffrey Christian.

The mining industry acts as a crucial pillar for the South African economy, given the fact that it generates 10% of the country’s revenues. However, the last year has seen a major dip in the market capitalisation of precious metals such as gold, silver, and platinum, and has dealt a significant blow to the economy as a result.

A range of factors is responsible for this dip in prices. For platinum, the drop was brought about by a dampening of investor sentiment, aided by mixed messages surrounding the metal circulating in the market, the most prominent of which is that its usage in the automotive sector is going to wane considerably.

“[Investors] are giving up the ghost on automotive demand and they think that automotive demand for platinum’s going away almost immediately. It’s not. It’s going to be around for decades, but that message isn’t getting across,” explains Jeffrey Christian, Managing Partner at commodities research and consulting firm CPM Group.

Based in New York, CPM Group is an advisory firm that prides itself on its neutrality, relying on insights provided by market researchers rather than by specialised professionals in banking, broking, or mining companies, who might be subject to bias.

When speaking of the departure of “automotive demand,” Christian refers to the government-led drive towards electrification that is currently prevalent in Europe and in India, which he regards as the biggest markets for diesel passenger cars. France, for instance, has announced that the internal combustion engine will be discontinued in French markets as of 2040, while India has emerged with similar targets.

As a result, the diesel market share in Europe, which had jumped from 15% in 1990 to 54% in 2013, has now fallen to 44% over the last year itself. The year-on-year decline for the market share has been 17% as a consequence of the withdrawal of government subsidies on the fuel.

According to Christian, however, the usage of diesel extends beyond just the automotive sector, making this a poor metric for investors to be using for their forecasts. The shipping industry across the globe is under pressure for its substantial contribution to pollution levels, which can be curbed through platinum-based diesel catalysts.

“If you look at the use of platinum in diesel catalysts, it’s actually pretty strong, but you don’t get that message out to investors. They just look at the headlines and they see that 44% to 37% drop in market share in passenger cars and they just extrapolate it,” explains Christian.