Platinum surges 45% within the year, is a supply crisis imminent?

A global platinum supply crunch is pushing the market to a critical point.

According to the latest report from Bloomberg, due to a continuous supply gap in platinum over the years, coupled with strong demand for physical metal from major consumer markets like the United States, inventories in key trading centers such as London and Zurich are rapidly depleting.

The rapid consumption of global platinum inventories has led to a 45% surge in the price of the metal this year, currently trading around $1,320 per ounce. For most of the previous decade, platinum prices fluctuated between $800 and $1,100 per ounce.

The most intuitive "pressure gauge" of the market—platinum's borrowing cost—has soared to abnormally high levels. Data shows that the one-month platinum leasing rate has consistently remained above 10%, although it is lower than the peak of over 35% in July, it is still far above the normal level that is usually close to zero. This directly reflects the very low willingness of holders to lend physical platinum, resulting in severe market liquidity depletion.

Two Major Demand Engines Siphoning Global Supply

The rapid consumption of platinum inventories is primarily driven by two major demand engines.

First is the hoarding behavior in the U.S. market. The latest developments indicate that concerns over tariffs have prompted a significant amount of platinum to flow into U.S. warehouses. In just the past three weeks, platinum inventories in the New York Mercantile Exchange (NYMEX) certified warehouses have increased by nearly 290,000 ounces.

At the same time, the world's largest platinum-consuming market is importing at an unprecedented pace, further exacerbating the global supply tightness. Major Asian consumer countries absorbed a record 1.2 million ounces of platinum in the second quarter, with import volumes consistently exceeding estimated domestic consumption.

This "panic buying" has directly led to spot shortages in the two major trading centers of London and Zurich, prompting traders to start hoarding physical metal and unwilling to lend. However, due to the lack of reliable official inventory data in the London market, it is difficult for outsiders to accurately assess the true extent of inventory depletion, adding more uncertainty to an already tight market.

Global Inventory Crisis, Borrowing Costs Soar

The soaring leasing rates are the most direct manifestation of the current predicament in the platinum market. For industries reliant on platinum, such as automotive, jewelry, chemicals, and glass manufacturing, high borrowing costs pose a severe challenge. These industrial users typically choose to lease rather than directly purchase platinum to reduce capital occupation, but this strategy is becoming increasingly difficult to sustain.

According to several traders from precious metals banks and commodity trading firms, as leasing rates soared to double digits, market liquidity has nearly dried up, and most borrowers are blocked by the high costs.

Ed Sterck from the World Platinum Investment Council (WPIC) stated: "When you see leasing rates soar to nearly 40%, it’s a crazy level for companies that borrow metal as part of their business strategy."

Jay Tatum, a fund manager at Valent Asset Management, believes that the leasing rates indicate that the "extreme tightness in the market" has not yet ended He added, "When the market tightens like this, for whatever reason, it should draw out hidden inventories."

Supply Gap Difficult to Fill

According to the World Platinum Investment Council (WPIC), the platinum market is heading towards its third consecutive year of supply shortage. South Africa, which accounts for 70% of global platinum production, continues to be plagued by power shortages and soaring costs, further strengthening the bullish case for the market.

Although the price recovery has allowed about 90% of platinum mining companies to achieve profitability (up from only 60% at the end of last year), this is not enough to stimulate new production investments. Craig Miller, CEO of Valterra Platinum Ltd., stated, "Prices need to rise by about 50% more to incentivize new capacity investments."

Marwan Younes, president of hedge fund Massar Capital Management, believes that the structural conditions of the market are in place, like "a pile of dry firewood," where any spark could ignite a "sharp rebound."

Increasing Divergence Between Bulls and Bears: Where is the Market Heading?

Despite clear signs of tightness in the spot market, Wall Street investment banks have differing views on the future trajectory of platinum.

A previous article from Wall Street Journal noted that analysts at Deutsche Bank pointed out in a report in July that the strong fundamentals of platinum will continue until 2026, with years of supply shortages providing solid support for prices. The bank believes that industrial restocking and alternative demand in the jewelry sector will be key drivers, predicting that platinum prices could reach $1,550 per ounce by 2026.

However, Goldman Sachs takes a cautious stance, with analysts Lina Thomas and Daan Struyven warning in their report that the recent price surge is primarily driven by speculation and ETF demand, rather than improvements in fundamentals. They believe that the automotive industry's transition to electrification will exert structural pressure on platinum's catalytic demand. Once speculative enthusiasm wanes, a price correction will be inevitable