Platinum Group Metals

Platinum is a relatively rare, chemically inert metallic element that is more valuable than gold. Platinum is a grayish-white metal that has a high fusing point, is malleable and ductile, and has a high electrical resistance. Chemically, platinum is relatively inert and resists attack by air, water, single acids, and ordinary reagents. Weighing almost twice as much as gold, platinum is the heaviest of the precious metals. Platinum is the most important of the six-metal group, which also includes ruthenium, rhodium, palladium, osmium, and iridium. The word “platinum” is derived from the Spanish word platina meaning silver.

Platinum is one of the world’s rarest metals with new mine production totaling only about 5 million troy ounces a year. All the platinum mined to date would fit in the average-size living room. Platinum is mined all over the world with supplies concentrated in South Africa. South Africa accounts for nearly 80% of world supply, followed by Russia, and North America.

Because platinum will never tarnish, lose its rich white luster, or even wear down after many years, it is prized by the jewelry industry. The international jewelry industry is the largest consumer sector for platinum, accounting for 51% of total platinum demand. In Europe and the US, the normal purity of platinum is 95%. Ten tons of ore must be mined and a five-month process is needed to produce one ounce of pure platinum.

The second major consumer sector for platinum is for auto catalysts, with 21% of total platinum demand. Catalysts in autos are used to convert most of vehicle emissions into less harmful carbon dioxide, nitrogen, and water vapor. Platinum is also used in the production of hard disk drive coatings, fiber optic cables, infra-red detectors, fertilizers, explosives, petrol additives, platinum-tipped spark plugs, glassmaking equipment, biodegradable elements for household detergents, dental restorations, and in anti-cancer drugs.

Palladium is very similar to platinum and is part of the same general metals group. Palladium is mined with platinum, but it is somewhat more common because it is also a by-product of nickel mining. The primary use for palladium is in the use of automotive catalysts, with that sector accounting for about 63% of total palladium demand. Other uses for palladium include electronic equipment (21%), dental alloys (12%), and jewelry (4%).

Rhodium, another member of the platinum group, is also used in the automotive industry in pollution control devices. To some extent palladium has replaced rhodium. Iridium is used to process catalysts and it has also found use in some auto catalysts. Iridium and ruthenium are used in the production of polyvinyl chloride. As the prices of these metals change, there is some substitution. Therefore, strength of platinum prices relative to palladium should lead to the substitution of palladium for platinum in catalytic converters.

Platinum futures and options and palladium futures are traded on the New York Mercantile Exchange (NYMEX). Platinum and palladium futures are traded on the Tokyo Commodity Exchange (TOCOM). The NYMEX platinum futures contract calls for the delivery of 50 troy ounces of platinum (0.9995 fineness) and the contract trades in terms of dollars and cents per troy ounce. The NYMEX palladium futures contract calls for the delivery of 50 troy ounces of palladium (0.9995 fineness) and the contract trades in terms of dollars and cents per troy ounce.

Prices – NYMEX platinum futures prices in 2003 on the nearest-futures chart rallied sharply and fairly steadily during the year, finally closing the year at an all-time record high of .30 per ounce, up 33% from the 2002 close of .50. Palladium prices, by contrast, were relatively weak in 2003, moving generally sideways at the bottom of the plunge in prices seen from the peak of about ,100 per ounce in early 2001 to the low of seen in April 2003. However, palladium did recover somewhat along with the rest of the metals in late 2003 due to the stronger US economy and the weak dollar, closing the year at .50. That was up 36% from the year’s low of but was still down 18% from the 2002 close of .55.

Supply – World mine production of platinum in 2002, the latest reporting year, rose by 2.2% to 184,000 kilograms from 180,000 in 2001. That was a 17-year high in production, going back to 246,988 kilograms of production in 1985. South Africa is the world’s largest producer of platinum by far with 73% of world production, followed by Russia (19%), Canada (4%) and the US (2.4%).

World mine production of palladium rose +2.3% to 181,000 kilograms in 2002 from 177,000 in 2001. The world’s largest palladium producers are Russia with 46.4% of world production, followed by South Africa with 35.5%, the US with 8.2%, and Canada with 6.4%.

World production of platinum group metals other than platinum and palladium rose to 57,000 kilograms in 2003 from 51,100 in 2001. South Africa accounted for 73% of that production and Russia accounted for the bulk of the remainder.

US mine production of platinum in 2002 rose by 21.6% to 4,390 kilograms from 3,610 in 2001. US mine production of palladium in 2002 rose by 22.3% to 14,800 kilograms from 12,100 in 2001. US refinery production of scrap platinum in 2002 fell 15.7% to 20,900 kilograms from 24,790 in 2001. Scrap platinum accounts for virtually all of US platinum refinery production since US mine production is miniscule.

Demand – The US automotive industry accounted for 60.3% of US platinum usages in 2001, followed by 10.7% for the electrical industry, 7.6% by the petroleum industry, 7.3% for the jewelry industry, 4.8% by the chemical industry, and 1.8% by the dental and medical industry.

Trade – US platinum imports for consumption rose 11.1% to 297,656 kilograms in 2002 from 267,957 in 2001. The US relied on imports for 93% of its platinum consumption in 2002. US exports of platinum rose 6.1% to 72,838 kilograms in 2002 from 68.625 in 2001.