Platinum is an important metal, mostly used by vehicle and other industrial companies. Most of it is used for catalytic conversion in vehicles. Like other metals, platinum is mined deep inside the earth’s crust, which means that it is labour intensive. Most of the platinum mined comes from Zimbabwe, South Africa, and Russia.
This year, platinum has fallen by 11% and has reached $823. This makes platinum one of the worst performing financial assets this year. Its closest peer is palladium, which too has fallen by more than 13%.
Broadly, the decline on platinum has been associated with the challenging trade environment this year. As the global economy develops problems, the demand for vehicles and other industrial goods tend to reduce.
Another big problem with platinum is that its producers are going through a difficult period. As the price of platinum has declined, their costs have increased. Recent reports are that in Zimbabwe and South Africa, mining companies are eliminating jobs at the fastest rate in decades. A recent report said that mining companies are eliminating almost 20,000 jobs. Another report said that mine closures were growing at the fastest pace ever in South Africa. This has been caused by frequent strikes, stagnant prices, and high costs.
As this happened, firms increased production so that they can remain operating. Since firms in the platinum sector don’t have an OPEC like body to regulate the production rate, the overproduction led to lower prices.
Another problem for platinum is that vehicle manufacturing companies are looking at the future. By this, they are spending huge resources on electric vehicles. EVs don’t need catalytic converters. In addition, as the effects of trade war bites, these firms will likely use recycled platinum or move to other cheaper products.
Platinum has reached $823, which is the lowest level since 2016. This level is below the 100 and 200-day simple moving average. In May, it crossed an important support level of $900 as shown below. The RSI is currently at 28. All this means that for long-term holders, this is an ideal period to invest in platinum because, in the long term, its price could rise. This will happen as the supply side helps stabilize the market with low production.