The diesel industry is dying, and it’s taking platinum down with it. Platinum prices have merely been treading water since the Dieselgate scandal thanks to diesel vehicle sales in Europe going on a five-year freefall.
The automotive industry is the biggest consumer of platinum, with 44% of the world’s supply of the precious metal going into catalytic converters. But with a dramatic fall in demand, and now Covid-19, the prognosis appears bleak for platinum bulls.
Or, maybe not.
Whereas platinum is losing its most important customer in diesel, it’s about to gain an equally impressive one: Green hydrogen.
Trevor Raymond, head of research at the World Platinum Investment Council (WPIC), has told Kitco that the hydrogen boom is about to provide a new lifeline for platinum.
Platinum / U.S. Dollar 5-Year Change
Source: TradingView
Source: MoneyWeek
The hydrogen sweet spot
Platinum plays a dual role in the budding hydrogen economy: It is used in fuel cells for fuel cell electric vehicles (FCEVs) and in the production of green hydrogen.
Whereas the FCEV market is enjoying an impressive renaissance, it’s the green hydrogen sector that’s really been hogging the limelight–and for good reason.
Green hydrogen is considered a 100% clean fuel because it’s produced when renewable energy sources such as wind and solar are used in the electrolysis of water. The IEA estimates that green hydrogen has the potential to save 830 million tonnes of CO2 emitted during the production of grey hydrogen from fossil fuels.
Platinum is used as a catalyst during the electrolysis process to improve performance and improve durability for commercial scale systems. Less than 1% of the world’s hydrogen supply is green, meaning the potential to decarbonize the sector is huge. The IEA has chalked in global green hydrogen demand at between 133 million and 158 million tonnes a year by 2050 if it were to completely replace fossil fuels in these sectors.
Scores of global energy heavyweights, including BP, Siemens Energy, Repsol, and Orsted have already outlined their green hydrogen strategies. Meanwhile, U.S.-based Plug Power (NASDAQ:PLUG) has struck a deal with Apex Clean Energy to develop a green hydrogen network using wind power offers a chance to tap into “very low cost” renewable power and helps accelerate the shift to clean energy.
Three months ago, the European Union set out its new hydrogen strategy as part of its goal to achieve carbon neutrality for all its industries by 2050.
In a big win for the hydrogen sector, the EU outlined an extremely ambitious target to build out at least 40 gigawatts of electrolyzers within its borders by 2030, or 160x the current global capacity of 250MW. The EU also plans to support the development of another 40 gigawatts of green hydrogen in nearby countries that can export to the region by the same date.
Platinum lagging gold
At a time when precious metals such as gold and silver have been taking out all-time highs, platinum has continued to lag.
Indeed, at a price point of $916/oz, platinum is trading at a big discount to gold’s $1,915/oz. That’s highly anomalous given that platinum has historically traded at a ~30% premium to gold hence the moniker ‘rich man’s gold.’ A return to the historical average of 1.3x would see platinum climb to nearly $2,500, or 173% higher than current prices.
Other than platinum being oversold, demand/supply factors are also in its favor. In its latest report, the WPIC forecast a supply deficit for the platinum market of around 336,000 ounces, a sharp contrast to its pre-Covid-19 estimate of a surplus of 247,000 ounces. Further, the organization says the ability to increase supply remains extremely limited and could take several years before we see new supply growth.
Maybe Biden winning the elections in November is all it will take to kick start another big platinum rally. But with the hydrogen marketplace predicted to eventually hit $11 trillion, this could be another unstoppable energy megatrend regardless of who wins.