Precious metals and cryptocurrencies have a lot in common. Both are championed by groups who question the integrity of global monetary systems. Both are known for their limited supply and regarded as an alternative store of value. Both have received bad press for their impact on the environment.
Platinum’s contribution to climate change may seem odd given the metal helps to clean up dirty car exhaust fumes. But demand relies on the continued production of internal combustion cars that use fossil fuels. Automotive catalysts make up about a third of platinum and almost all of palladium consumption. A future of climate-friendly electric vehicles is bad news for suppliers.
This remains some way off. Plenty of new cars still require their fumes cleansed of polluting elements such as carbon monoxide and nitrogen oxide. Platinum prices doubled in the year to March as traders anticipated a rebound in auto sales. No surprise that shares in UK-listed Johnson Matthey, one of the world’s largest makers of catalytic converters, have rallied by half in the past 12 months.
But platinum’s rally has faded since the spring. Rival metal palladium is preferred by automakers for use in petrol emission catalysts. That is especially true since Volkswagen’s disastrous emissions scandal in late 2015.
Supply concerns have helped to lift palladium prices. Demand has outpaced global supply by an annual average of 611,000 troy ounces in the four years to the end of 2020, according to Johnson Matthey. Automakers cannot easily switch input materials, even if palladium trades at well over double platinum’s $1,064 per troy ounce value.
Like cryptocurrencies, platinum and palladium are both dogged by long-term ESG issues. The metals are predominantly mined in South Africa, where mines are often dangerously hot and deep, making safety a paramount issue. The switch to electric battery vehicles also means dwindling demand for platinum and palladium in the years ahead. While crypto may find alternative sources to power its mining, the metals will struggle to find a replacement for consumption that can match automotive catalysts.
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