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China's platinum demand sees positive signals from auto, jewelry sectors

China's demand for platinum has recently seen positive signals following the first-quarter hit to the market by the coronavirus pandemic in the form of stricter governmental emissions standards for vehicles and jewelers making headway in engaging customers, according to market watchers.

In the first quarter, lockdowns in China reduced the country's platinum jewelry sales and heavy-duty automotive demand for the precious metal, according to a May report by the World Platinum Investment Council, or WPIC.

A surplus of 247,000 ounces was forecast by the WPIC for the global platinum market in 2020, with demand estimated to shrink by 18% from the previous year to 6.95 million ounces due to a decline in almost all the major end-use segments. Globally, the two biggest contributors to platinum demand are the automotive and jewelry sectors.

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China's more stringent auto emissions legislation

Tighter environmental regulations will potentially increase the Chinese vehicle sector's utilization of platinum autocatalysts to reduce carbon emissions, according to analysts.

Xu Ruoxu, a commodities analyst with Shenwan Hongyuan Securities in Shanghai, expects that the phasing in of China's new emission standards for vehicles this year will lift the automotive sector's platinum consumption, with the country committed to producing more hydrogen-powered fuel cell vehicles.

The WPIC report also said platinum demand is estimated to grow by 14% in China this year, while global automotive demand is expected to drop 14%.

As part of the country’s efforts to tackle air pollution, the Ministry of Ecology and Environment has rolled out stage-6 emission standards for light and heavy-duty vehicles. The first phase of the new standards will be widely implemented from July 1, and a transition period of six months will be given to carmakers in some regions to upgrade their technologies or sell remaining inventories of vehicles equipped to the old standards.

"The government's policies continue to show a determination to reduce carbon emissions this year. ... The measures like new emission standards and incentive subsidies for buyers who purchase fuel cell vehicles will definitely increase the automotive market's demand for platinum catalysts," Shenwan Hongyuan's Xu said in an interview.

Platinum, palladium and rhodium are used in catalytic converters to reduce normal vehicle emissions. Fuel cell vehicles use more than twice the amount of platinum than internal combustion engine vehicles. In recent years, carmakers have considered substituting palladium in autocatalysts for platinum to cut costs as the palladium price has increased significantly.

Samson Li, a Hong-Kong based precious metals analyst with Refinitiv GFMS, expects potential demand growth for platinum from the Chinese automotive sector to accelerate if carmakers widely start substituting palladium for platinum in autocatalysts. However, he said the industrial development will still depend on the palladium premium over platinum, and it might not happen in the short term as the premium has narrowed.

"Recently I couldn't see a strong motive for carmakers to widely start the substitution of palladium with platinum in autocatalysts," Li said in an interview, adding that palladium prices are facing downward pressures after years of gains, with the supply-demand picture for the metal entering a balance this year.

Chinese jewelry sector restructures

Analysts expect a year-over-year decline in China's jewelry sector for 2020 as a slowing Chinese economy outweighs households' disposable income.

Compared with the automotive segment, the jewelry sector's demand for platinum, primarily created through marketing, accounts for a larger portion of China's platinum demand.

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Hit by the coronavirus outbreak in the first quarter, China's platinum jewelry manufacturing dropped by 45% year over year, according to the WPIC report. However, the pandemic has accelerated the restructuring of the Chinese jewelry industry, and a gradual recovery has started in the second quarter, Liu Zhenzhen, director of global corporate marketing at Platinum Guild International, or PGI, said in an interview.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Marketing organization PGI is backed by several major South African platinum miners, including Anglo American Platinum Ltd., and works with retailers to increase jewelry demand. In China, its retail partners include Chow Tai Fook Jewellery Group Ltd. and Luk Fook Holdings (International) Ltd.

Liu said that the Chinese jewelry industry is working hard on digital consolidation and has increased the utilization of livestreaming, short videos and social media to provide an omnichannel experience to engage customers since the coronavirus pandemic changed the way people shop.

Liu sees livestreaming sales as an important shift for Chinese retailers' online sales businesses, and said PGI is working closely with China's leading jewelry retailers to utilize the power of influencers and celebrities to create jewelry demand for platinum. PGI has collaborated with some influencers in China to highlight the use of platinum in luxury goods through livestreaming.

Heading into the second half, PGI is working on different marketing campaigns across the country to boost demand for the precious metal through its retail partner network, according to Liu. This reapplied a marketing initiative launched in Guangdong province by PGI with 252 retail stores and seven manufacturers last year to boost retail sales in the region, in which some retailers achieved significant growth in platinum jewelry sales, said Liu.