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Global growth may drive platinum demand higher

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GraniteShares Inc. CEO William Rhind.

Source: GraniteShares Inc.

? Overhang of declining diesel market share priced into the platinum market

? Platinum demand may increase with substitution

? Global growth may push up industrial platinum demand

Platinum has underperformed relative to many other metals in terms of price and market demand in recent years. In part, a declining market share for diesel cars — in which platinum is used in catalytic converters — has hurt its prospects. Yet global growth is picking up, and platinum is also an important jewelry metal. S&P Global Market Intelligence caught up with William Rhind, CEO of GraniteShares Inc., which recently launched GraniteShares Platinum Trust as a platinum exchange-traded fund, for his view of the market. The following is an edited transcript of that interview.

S&P Global Market Intelligence: Platinum has traded at a heavy discount to gold in recent years. Why is that?

William Rhind: I think there are a number of things that come into play here. Most importantly, when you think about the demand for platinum, platinum is a precious metal but it's also an industrial metal, whereas gold is almost exclusively a precious metal.

Platinum shares that with silver.

Exactly. We've referred to platinum as a procyclical metal versus a countercyclical metal, which is gold.

Expand on that meaning for a moment.

Meaning, gold typically goes against the business cycle. If the economy is doing well, gold may or may not be doing well, typically less well. Whereas if the economy is doing poorly, you'd expect gold to benefit because of the fear trade. Platinum is more correlated to the business cycle as are other industrial metals because their demand make up is exclusively industry.

And we've had a bear market for commodities. That's just a fact. And we think that bottomed at the beginning of 2016, certainly as measured by the broad commodity indices, being the S&P GSCI Commodities Fund and the Bloomberg Commodity Index.

Sure. Teck Resources Ltd., for example, was roughly a C$4 stock at the beginning of 2016 and it is now over C$30.

There's a couple of things. We've had a couple of back-to-back positive years for broad commodities, as measured by those two indices. But platinum's not in those indices and is typically not a constituent of the broad commodity indices. When you have buying from investors in terms of putting money back into the commodity sector by way of index buying, typically platinum doesn't participate in that. So you haven't had that uplift in investor demand.

You've then had more interest in gold because of the fears of inflation, a weaker dollar and a stock market correction, whereas with platinum, it's been more about the global economy picking up. I think people really started to form a view that there was global synchronized growth over the last six months or so. I think that the demand for platinum is starting to pick up now.

And one of the things we would be remiss if we weren't talking about, which has weighed on platinum, are people being nervous about the demand from the diesel car segment, where platinum is used in catalytic converters.

What is your view there?

I think that's by far and away the biggest negative. But I think that it's almost been priced into the market. I think the market has started to realize a few important points. The first is when platinum-share declines, typically what happens is that the market share has not been replaced by electrical hybrid vehicles. It's actually been replaced by regular gas vehicles, which depend more on palladium than platinum in their catalytic converters. Although platinum doesn't benefit from that immediately, what then happens, if platinum trades at a discount to palladium, which is a major input into gasoline catalysts, there comes a point where there will be substitution.

Have you seen that in the market?

Not yet. Typically these supply chains are many years out. But that clearly would be a real factor if that started to happen.

Finally, on mine supply: Do you see new mines, particularly in Africa, adding to supply in coming years?

I think the short answer is that we don't see an environment where more supply is going to be brought on to the market, at least unexpectedly. I think the market will remain constrained.